The death of a trustee or member is one of the most significant events an SMSF will ever deal with. It triggers a series of legal, administrative and tax obligations that must be handled correctly to protect the integrity of the fund and ensure the deceased member’s benefits are paid to the right person.
For accountants supporting SMSF clients, this is an area where careful documentation is critical. The ATO expects trustees and their advisers to follow the correct processes, maintain evidence and ensure the death benefit is managed strictly in line with superannuation law and the fund’s governing documents.
Identifying the correct beneficiary
The first and most important step is determining who is entitled to receive the deceased member’s benefit. This is not always straightforward.
Key sources of evidence include:
- The SMSF trust deed
- Binding or non-binding death benefit nominations
- Reversionary pension documentation
- The member’s will (to confirm executors and provide supporting context)
- Any minutes or prior resolutions relating to the fund
Accountants need to verify that the benefit is paid to the correct beneficiary and that the evidence supports the decision. This is especially important where:
- No valid binding nomination exists
- The nomination has lapsed
- There are blended families
- A reversionary pension is in place, but documentation is incomplete
- The executor differs from the nominated beneficiary
Without clear evidence, the fund risks paying the benefit incorrectly, which may result in disputes, complaints or regulatory scrutiny.
Pension and benefit documentation
Where the deceased was receiving a pension or a reversionary pension is to continue, the documentation must clearly support:
- Who the pension reverts to
- When the pension commenced
- Whether the pension terms allow it to revert to that person
- The calculation of the benefit
- Minutes or trustee resolutions confirming the continuation or commutation
This documentation becomes essential during the audit, particularly where questions arise about entitlement or the structure of the pension.
PAYG withholding requirements
Another key area where errors can occur is PAYG withholding. In many cases, death benefits paid to dependants are tax free. However, when benefits are paid to non-dependants, such as adult children who do not meet the SIS definition of a dependant, tax must be withheld.
This requires careful attention in order to:
- Determine whether the recipient is a dependant for tax purposes
- Calculate the taxable component of the benefit
- Apply the correct PAYG withholding
- Issue a PAYG payment summary
- Report and remit withheld tax to the ATO
Failing to withhold tax when required can create compliance issues for the fund and delay the administration of the deceased member’s affairs.
Evidence is essential
Every stage of the process must be supported by documentation to protect trustees, provide clarity during the audit and ensure the benefit has been paid correctly. As SMSF auditors, we need to see:
- Certified copies of the death certificate
- Evidence supporting the chosen beneficiary or pension reversion
- Minutes or trustee resolutions
- Benefit calculations
- PAYG withholding records
- Updated trustee arrangements where required
Good documentation helps ensure compliance and reduces the risk of disputes or challenges from family members or beneficiaries.
Get a copy of our Deceased Member Administration Checklist
At Audit Your Superfund, we use a detailed Deceased Member Administration Checklist to help accountants and trustees work through each step, collect the correct documentation and avoid the common errors seen during audit.
If you would like a copy of the Deceased Member Administration Checklist, or have additional questions, please contact Jimmy Morrison at jimmy@audityoursuperfund.com.au.