Succession Strategies SMSF Members Should Consider Before Retirement
Thanks to booming property prices and super balances amongst Australia’s Baby Boomers, we’re currently entering one of the largest intergenerational wealth transfers in history. Trillions of dollars is expected to pass to Gen X, Y and Z from their parents and grandparents over the coming decades.
For many families, a significant portion of this wealth is held inside their super, including Self-Managed Superannuation Funds (SMSFs). The transfer of these funds, however, won’t happen automatically. For anyone with kids and not yet retired, now’s the time for robust succession planning to protect not only the wealth you’ve built, but to control how, and when it’s passed on to your beneficiaries.
Why Succession Planning Matters Before You Retire
SMSFs provide control and flexibility – but only if conditions are put into place that allow for control after you retire, become incapacitated, or pass away. Succession planning, therefore, ensures your SMSF doesn’t stagnate, become non-compliant, or distribute benefits in ways you never intended.
This is why it’s so important to undertake an estate planning process while you have capacity and clarity, to ensure your SMSF flows on to the generations as you want it to, once you’re too old, frail or passed away.
Trustee Control: The Cornerstone of SMSF Succession
Most SMSF Members are attracted to the model over retail funds because of the level of control they offer over their fund and decision-making power. For instance, the trustee (or the directors if there’s a corporate trustee) decides:
- How death benefits are paid
- When they’re paid
- Who they’re paid to
Conditions set by the trustee are governed by the fund’s trust deed and super law under the Superannuation Industry (Supervision) Act 1993 (SISA) and associated regulations. SMSF Trustees have a legal duty to comply with requirements, including a regular review of:
- Trustee structure, including whether the fund has an individual or corporate trustee
- Who takes over as trustee or director in the instance of incapacity or death
- Whether the current arrangement supports your intentions for your superannuation once you are either incapacitated or die
Clearly documenting successor trustees optimises the continuity of your SMSF, reducing the risk of disputes or unintended outcomes once you pass away.
Binding Death Benefit Nominations: Certainty When It Matters Most
A Binding Death Benefit Nomination (BDBN) is one of the most powerful tools in SMSF succession planning. A valid BDBN bypasses the typically-lengthy probate process, and tells your SMSF trustees exactly who should receive your death benefit, binding them to follow those instructions.
Key points about BDBNs in SMSFs:
- Only eligible dependants or your legal personal representative can be nominated to receive your death benefit.
- The nomination must be in line with your SMSF’s trust deed (not all SMSFs automatically allow a BDBN).
- Unlike industry funds, SMSF BDBNs may be set up so they do not lapse after three years – but only if the trust deed allows non-lapsing nominations, so it’s wise to regularly check the deed.
- Without a valid BDBN, trustees must rely on discretion under the trust deed and super law to decide who receives benefits, which can lead to significant delays or disputes. https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/paying-smsf-benefits/death-of-an-smsf-member?trk=public_post_comment-text&utm_source=chatgpt.com
Important: A Will alone cannot control SMSF death benefit payments. Rather, super law and your SMSF’s trust deed take precedence.
Reversionary Pensions: Certainty for Your Partner
For members receiving a pension from their SMSF, a reversionary pension nomination can provide certainty for a surviving spouse or eligible beneficiary. When structured correctly:
- The income stream simply continues to your chosen beneficiary
- There’s less discretion for remaining trustees
- This can reduce administration time and emotional burden during difficult periods
Important: Reversionary nominations sit alongside BDBNs, and both should be coordinated with your broader succession plan to make sure benefits flow as intended.
Balancing Family Dynamics and Fairness
Succession planning isn’t just about legal documents, but about family communication, too. For SMSF Members, this often involves:
- Blended families
- Multiple beneficiaries with different needs
- Adult children, grandchildren, and dependent family members
Therefore, it’s important to have clear, documented instructions to reduce the risk of conflict later on. Early and open discussions, aligned with formal documents, help manage expectations and protect family harmony.
Keep Your Succession Plan “Active”: Review Regularly
Your SMSF succession plan should not be “set and forget.” Changes in family circumstances (ie marriage, divorce, births, deaths), your SMSF balance, or trust deeds and legislation will all affect the best strategy for you.
Therefore, it’s important to review your plan regularly, ideally with oversight from your financial adviser or SMSF specialist, so that your succession plan remains aligned with your intentions and current law.
A Succession Planning Checklist for Pre-Retirees
Here’s a practical checklist to get started on a smooth transition of your SMSF Fund to your family members:
- Review your SMSF trust deed to confirm what types of nominations it supports.
- Make or update your BDBN (or consider a non-lapsing nomination if permitted).
- Consider reversionary pension nominations for your retirement income streams.
- Appoint or document successor trustees clearly in your plans.
- Talk with family members about your intentions.
- Review annually, or after any major life change.
Final Word: How to Protect Your Legacy
Succession planning isn’t just an administrative task, but an important process that will protect your control, your relationships, and the legacy you leave behind.
As an SMSF Member, taking action now can ensure your wealth transition supports your family when it matters most.
If you’d like help turning these strategies into a practical plan, consider speaking with a qualified SMSF professional Intello.