A guide to the issues every remaining SMSF Trustee must understand first, before dealing with the death of a member.
SONAS WEALTH | THE SMSF COACH Last reviewed: 9 November 2026 · Rules as at 9 November 2026; figures as at 1 July 2026 (2026–27)
SMSF TRUSTEE EDUCATION SERIES
By Liam Shorte | Fellow SMSF Specialist Advisor™ | Financial Planner
Answer: Not necessarily. The deceased member’s benefit must be paid out as soon as practicable, but the fund itself can continue with the surviving member. The SIS Act allows six months to fix the trustee structure, under s.17B. Whether keeping the fund makes sense depends on the balance, the survivor’s capacity to run it, and who can help.
| ⚖️ General Advice Disclaimer This article is general information only and does not constitute personal financial, legal or tax advice. The rules governing SMSFs are complex and individual circumstances vary significantly. You should obtain advice from a licensed financial adviser before acting on anything in this article. The author holds AFSL authorisation through Sonas Wealth Pty Ltd, corporate authorised representative of Viridian Advisory 476223. |
Who this applies to
This is written for couples in a two-member SMSF where one member has died and the other is deciding what to do next. The same principles apply to larger funds, but a fund left with two or more surviving members usually keeps a valid corporate trustee structure without any change. If the survivor has lost capacity, or the death is disputed between family members, the answer changes and needs personal legal and financial advice before any decision is made.
What happens to the trustee structure when a member dies?
The fund stops meeting the SMSF trustee rules in s.17A of the SIS Act, and the survivor has six months to fix that. Until then, the deceased member’s executor can act as trustee in their place.
A single-member SMSF needs either two individual trustees, being the member and one other person, or a company trustee with the member as a director. The second individual trustee is often an adult child. A company trustee is usually the cleaner option: when a director changes later, the fund’s assets stay in the company’s name and don’t have to be retitled.
This is also the moment to plan for the next change. An enduring power of attorney can step in as trustee or director under s.17A(3)(b) if the survivor later loses capacity, but only if one has been made and the trust deed allows it. We also recommend the EOOA specifically provides for management of superannuation interests.
What must happen to the deceased member’s benefit?
Death is a compulsory cashing event under reg 6.21 of the SISR, so the deceased member’s benefit must leave their account as soon as practicable. There is no fixed deadline, but the ATO generally expects payment within about six months unless there is a genuine reason for delay, such as a disputed nomination.
If the deceased had a reversionary pension in the survivor’s favour, it simply continues . Otherwise the trustee pays a lump sum, starts a death benefit pension for the spouse, or does both, following any valid binding nomination and the trust deed. Moving the balance across to the survivor’s accumulation account by journal entry is not a payment, as the ATO confirmed in ATO ID 2015/23.
A death benefit pension counts towards the survivor’s transfer balance cap (TBC), which is $2.1 million for new retirees in 2026–27 but a survivor who started a pension earlier will have a lower personal TBC. For a reversionary pension, the credit arrives 12 months after death, which gives time to restructure. Any amount above the survivor’s cap cannot go back into accumulation and must be paid out of super. Adult children who are not financially dependent pay tax of up to 17 per cent, including the Medicare levy, on the taxable component they receive or 15% if the death benefit is funnelled though the estate (which raises its own issues).
For combined balances over $3m, DivIsion 296 Tax planning will be required and this is definitely an area for an SMSF expert to be engaged. Link to more info on Div 296 Tax
When does keeping the fund make sense?
Keeping the fund usually makes sense when the balance is large enough to justify the running costs, the survivor wants to stay involved, and there is someone to help. It is also often the better path when the fund holds an asset that would be costly or slow to sell, such as commercial property.
Winding up deserves a hard look when the balance has fallen to the point where fixed costs eat into returns, or when the deceased member was the one who managed the fund. The survivor’s age and health matter too. An SMSF asks a lot of a sole trustee, and grief is not the best time to take on investment decisions, audit deadlines, and the trustee duties in s.52B of the SIS Act alone.
What does winding up involve?
Winding up means selling the assets or transferring them out, paying the final tax bill, and rolling the survivor’s benefit to another fund or paying it out. A retail or industry fund can usually continue an account-based pension for the survivor.
The tax cost depends on timing. Assets supporting a retirement phase pension are generally exempt from capital gains tax when sold, while assets in accumulation are not. Any carried-forward capital losses are lost when the fund closes, so they should be used before the final sale where possible. The fund then needs a final audit and a final annual return before the ATO closes it.
Which option suits your situation?
The survivor has three realistic paths. The right one depends mostly on how much control they want and how much responsibility they can carry.
| Option | Control | Ongoing workload | Future trustee changes | Best suited to |
|---|---|---|---|---|
| Keep, with two individual trustees | Full | Unchanged; shared with the second trustee | Assets retitled at each change | Survivors with a willing, nearby adult child |
| Keep, with a company trustee | Full | Unchanged | Assets stay in the company’s name | Survivors who want to stay in charge, or who hold property |
| Wind up and roll over to a public offer fund | Limited to investment options | Minimal | Not applicable | Smaller balances, or survivors who don’t want the responsibility |
A worked example
This is a fictional example. Margaret, 74, and Peter, 76, ran their SMSF as individual trustees for 18 years. Peter managed the investments. When he died in March, the fund held $1.35 million in ASX shares and term deposits: Peter’s account-based pension of $700,000, reversionary to Margaret, and Margaret’s own pension of $650,000.
Peter’s pension reverted to Margaret automatically, so no lump sum was needed. Twelve months after his death, her transfer balance account will be credited with $700,000. Combined with her own pension, that puts her at $1.35 million, comfortably inside her cap, so nothing has to leave super.
Margaret wanted to keep control but didn’t want to manage the shares alone. Within the six-month window, she replaced the trustees with a company, appointed herself sole director, and made an enduring power of attorney naming her daughter. She also engaged an adviser to manage the portfolio day to day and to provide overall guidance and coaching. Had the balance been $300,000, or had she wanted no involvement at all, rolling over to a public offer fund would have been the more sensible choice.
What we see in practice
Often if the survivor is the one who had been taking the main decisions for the fund already then they tend to just keep rolling on with the fund and already understand the ongoing processes. However they will often engage a SMSF Specialist Adviser to guide them on options available to them in terms of dealing with the death benefits, recontribution strategies, new Non-Lapsing Binding Death Benefit Nomination etc. You don’t know what you don’t know!
Strangely, for many women survivors they often also ask us to help the keep the SMSF open because they are proud of what they and their spouse built. It’s a sense of loyalty in a way and any adviser really needs to work with the spouse to ensure they know their options, understand the ongoing requirements and what help is available.
Often an adult child is brought in to the inner circle of managing the fund at this stage as support for the remaining member/trustee. Mire and more we are encouraging clients who feel this may happen in the future, to bring them in to the fund earlier so they can learn strategies and processes the current members prefer before an incapacity or death.
It’s not always a smooth process as often the binding nominations or reversionary pensions turn out to be invalid or missing. This happens often when the deceased was the only one who understood the fund.
Frequently asked questions
Do I have to pay out my late spouse’s super straight away?
No. There is no fixed deadline, but the benefit must be paid as soon as practicable, and the ATO generally expects that within about six months. A reversionary pension meets the requirement as soon as it continues to the surviving spouse. A longer delay needs a genuine reason, such as a disputed nomination, lack of liquidity or a probate hold-up.
Can my adult child be the second trustee of my SMSF?
Yes. In a single-member fund with individual trustees, the second trustee does not need to be a member. Under s.17A of the SIS Act, they must either be a relative or not be the member’s employer. They take on full trustee duties and personal liability, so choose someone willing to be genuinely involved. Our recommendations is to switch to a trustee at this time to avoid further issues in the future.
Will winding up our SMSF trigger capital gains tax?
It can. Assets supporting a retirement phase pension are generally exempt when sold, so a fund fully in pension phase may pay little or no tax. Assets in accumulation are taxed on any capital gain, and carried-forward capital losses are lost once the fund closes. Model the tax outcome of the final sale before committing. Depending on timing you may exit over 2 financial years and stagger sales across accumulation and pension accounts to minimise tax.
Next step
If you have lost a fellow member, gather three documents first: the trust deed, any binding nomination or reversionary election, and the current trustee details (accountant / administrator often have the best records). Then book a session with us within the first three months, so the trustee structure and the death benefit are settled well before the six-month deadline.
Sources:
SIS Act s.17A, s.17B and s.52B; SISR reg 6.21; ATO ID 2015/23; ITAA 1997 Subdivision 294-B (transfer balance cap).
Are you looking for advisors that will keep you up to date and provide guidance and tips like in this blog? then why not contact us at our Castle Hill or Windsor office in North West Sydney to arrange a one-on-one consultation, just click the Schedule Now button up on the left to find the appointment options.
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Liam Shorte B.Bus FSSA™ AFP
Financial Planner & Fellow SMSF Specialist Advisor™
Tel: 02 9899 3693, Mobile: 0413 936 299
- PO Box 6002 NORWEST NSW 2153
- Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
- Suite 4, 1 Dight St., Windsor NSW 2756
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
Important information
This article is general information only and does not constitute personal financial, legal, or taxation advice. The rules governing self-managed superannuation funds are complex and fact-specific. Individual circumstances vary significantly, and the application of the rules described in this guide depends on facts that can only be properly assessed by a qualified professional. Before establishing or participating in a structure of this type, seek advice from a licensed SMSF adviser and an experienced tax lawyer. Past tax outcomes are not a guide to future tax treatment.
