Should we wind up our SMSF after a member dies?

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.

Sona Wealth educational cover titled “Should we wind up our SMSF after a member dies?” with subtitle about options, the six-month window and what to settle first.
⚖️  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.

OptionControlOngoing workloadFuture trustee changesBest suited to
Keep, with two individual trusteesFullUnchanged; shared with the second trusteeAssets retitled at each changeSurvivors with a willing, nearby adult child
Keep, with a company trusteeFullUnchangedAssets stay in the company’s nameSurvivors who want to stay in charge, or who hold property
Wind up and roll over to a public offer fundLimited to investment optionsMinimalNot applicableSmaller 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.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

Logo indicating a Fellow SMSF Association Specialist certification, featuring a hexagonal shape with 'SMSF FELLOW' text and additional explanatory text.

      

Logo of Sonas Wealth featuring a stylized tree design, with the words 'SONAS WEALTH' and the tagline 'CREATE - ENJOY - TRANSFER' below it.

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.

ATO is cracking down on early release schemes. SMSF trustees have the most to lose.

A guide to the issues every SMSF owner must understand first before using Compassionate Early Release.

SONAS WEALTH  |  THE SMSF COACH

SMSF TRUSTEE EDUCATION SERIES

By Liam Shorte  |  Fellow SMSF Specialist Advisor™  |  Financial Planner

Infographic titled 'Fewer applications, more money' discussing ATO's compassionate release data for SMSF trustees, featuring statistics: 5% fall in approved applications in 2025-26, total value approved of $1.4b+, up 2% from last year, and over 160 ATO reviews and audits since July 2025.
⚖️  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.

The ATO’s latest compassionate release figures tell an odd story. The number of approved applications fell by 5% in 2025–26, yet the total value approved rose by 2% to over $1.4 billion. Fewer people are getting through, but on average each approval is larger.

The ATO believes its compliance work explains the drop. The rising dollar figure points to something else: where these arrangements still succeed, bigger sums are leaving retirement savings. For SMSF trustees, that deserves more attention than most of the coverage will give it. There are minefields for SMSF Trustees that could destroy future plans and derail your business or career.

What the ATO and Ahpra announced

On 22 October 2026 the ATO and the Australian Health Practitioner Regulation Agency (Ahpra) issued a joint release targeting health practitioners and third-party facilitators who push people to access their super early. They single out cosmetic dental work.

The ATO says that since 1 July 2025 it has started over 160 reviews and audits where it considers false or misleading statements were made in applications or medical reports, and has imposed penalties of over $1.5 million. In one case study, a practitioner received an administrative penalty of around $30,000 for false or misleading statements in a medical report. Ahpra reports that one practitioner has had their registration suspended in relation to a patient’s cosmetic surgery, and others face tribunal proceedings.

ATO Deputy Commissioner Ben Kelly put it plainly: “compassionate release of super should only be considered as a last resort, where all other options of paying for the eligible expenses have been exhausted.”

Why SMSF trustees carry more of the weight

In a large retail or industry fund, the fund stands between the member and the money. It checks the paperwork and makes the payment. An SMSF usually has no such buffer. The member who wants the procedure is often also a trustee, or a director of the corporate trustee. The person under pressure to pay for the treatment is the same person who can authorise the payment. We warn our client’s to be very, very careful if considering this option and can often find alternatives sources of finance for the treatment.

So the rules are worth stating clearly. An SMSF trustee can release a benefit on compassionate grounds only after the ATO has approved the member’s application. The ATO’s approval letter sets the amount and the purpose, and the trustee can pay up to that amount, for that purpose, and no more. The trust deed also needs to allow the payment, so check it first. ATO approval permits the release but does not oblige the trustee to make it.

Paying a benefit without approval, or beyond what was approved, is illegal early access, and the consequences fall on more than one person. The amount released is generally included in the member’s assessable income and taxed at their marginal rate. Trustees can face administrative penalties, and each individual trustee or director can be penalised separately. The auditor may have to report the breach to the ATO as a contravention. The ATO can then take further action, which can include rectification or education directions, disqualification of a trustee (devastating if you run your own business), or in serious cases making the fund non-complying. See the Worst Case Scenario section below for more details.

READ THE DEED: Note that the trust deed must also allow the payment. Check the payment of benefits clauses.

Penalties are set in penalty units, which are indexed. A 60-penalty-unit administrative breach for a self-managed super fund (SMSF) trustee equals $21,840 (calculated at the current rate of $364 per penalty unit effective 1 July 2026). If you want current dollar figures, check the ATO’s SMSF guidance as this number will only increase over time!

The tax and Centrelink catch

Even a properly approved release costs something. As the ATO notes, approved amounts withdrawn may be taxable and increase reportable income, which could affect eligibility for government payments such as the Family Tax Benefit. How much tax applies depends on the member’s age and the components of their benefit. For a young family stretching to pay for treatment, a smaller family payment on top of a smaller super balance can come as an unwelcome double whammy!

Red flags worth knowing

The ATO and Ahpra describe a pattern that’s easy to spot once you’ve seen it. Be wary of:

  • Social media or online advertising for treatment “funded by your super”
  • Short online consultations that quickly confirm you qualify
  • Templated paperwork, or an offer to complete the application for you
  • Pressure to commit before you’ve had time to think it through
  • Cosmetic dental work presented as a medical necessity

Ahpra CEO Justin Untersteiner said Ahpra is “concerned by predatory sales tactics that use social media and internet advertising to attract patients for high-cost treatments they do not need or cannot afford.”

A better first step is a phone call. Speak to your adviser, accountant or SMSF administrator before you sign anything or pay a deposit. A short conversation can save a member years of lost compounding and spare the trustees a compliance problem.

A note for accountants, auditors and administrators

Most of us see the results of these arrangements in the annual paperwork, not when they happen. A few checks are worth building into the file review. Any benefit paid without an obvious condition of release should have an ATO approval letter on file, and the amount paid should not exceed the approved amount. How the money was paid also matters. Note whether it went to the member or straight to the provider, and confirm that invoices and receipts match the approved purpose. If the same provider or facilitator turns up across several clients’ files, look more closely.

Raising this early helps everyone. A trustee who hears about a problem from their accountant has options. A trustee who first hears about it from an auditor contravention report or an ATO letter has fewer. Raising it early also protects the professional: a question asked and an answer on file are far better than explaining later why a gap went unnoticed.

How to report concerns

If you see inappropriate advertising, or suspect a practitioner has provided an inaccurate medical report, the ATO encourages you to make a tip-off. Trustees who realise their fund has made a payment it shouldn’t have can make a voluntary disclosure, which puts them in a better position than waiting for the ATO to find it. Concerns about a registered health practitioner can be reported to Ahpra.

Back to what super is for

The Sole Purpose of super is to set you up for retirement. Compassionate release exists for real hardship, and for people who need it, it does its job. As SMSF trustees and advisers, our fiduciary duty is to make sure it doesn’t become a payment plan for someone else’s sales target.

If you’re an SMSF trustee weighing up a compassionate release application, or a professional who has spotted something in a client file, I’m happy to talk it through. You can contact us here or post an Anonymous Question on our SMSF Coaching & Strategies Sharing Facebook Forum. I’d also like to hear in the comments whether these offers are turning up in your practice and your views.

Worst Case Scenario

Here are the detailed main downsides for SMSF trustees, or directors of a corporate trustee, who falsify a compassionate release application or pay a benefit that relies on one. They fall into seven groups.

1. Tax for the member

  • Money released on the back of a false application is likely to be treated as illegal early access. It is then included in the member’s assessable income and taxed at their marginal rate, not at the concessional super lump sum rates.
  • General interest charge and shortfall interest charge can apply to any unpaid tax.
  • The extra income can reduce Family Tax Benefit and other Centrelink payments, and may create a debt that has to be repaid.

2. Penalties for false or misleading statements

  • The ATO can impose administrative penalties for false or misleading statements. The amount depends on how culpable the person was, for example carelessness compared with intentional disregard.
  • These penalties can apply to the member, the individual trustees or SMSF Trustee Company directors, and anyone else who made or supported the false statements.

3. Possible criminal prosecution

  • Serious cases can be referred for prosecution. Relevant offences include giving false or misleading information to a Commonwealth entity and, at the serious end, obtaining a financial advantage by deception under the Criminal Code.
  • A conviction for a dishonesty offence has knock-on effects. It automatically disqualifies the person as an SMSF trustee. It can also disqualify them from managing any Company under the Corporations Act, which matters for anyone running a business through a company or they have career board director promotion prospects.

4. Penalties under the super rules (SIS Act)

  • Paying a benefit without a valid condition of release breaches the payment standards. An administrative penalty applies, which I understand to be 60 penalty units for this breach. Penalty units are indexed, so check the current value with the ATO. Current Early Release is a $21,840 penalty per Trustee.
  • Individual trustees are each penalised separately. For a corporate trustee, the directors are jointly and severally liable.
  • These penalties must be paid personally. They can’t be paid or reimbursed from fund assets.
  • The ATO can also issue a rectification direction, which means unwinding the payment at the trustee’s cost. It can issue an education direction, or require an enforceable undertaking.

5. Disqualification and loss of control of the fund

  • The ATO can disqualify a trustee or director, and disqualified people are named on a public register.
  • A disqualified person can’t act as trustee or director of any SMSF. The fund then has to restructure, roll its members out to an APRA-regulated fund, or wind up.
  • Acting as a trustee while disqualified is a separate offence.

6. The fund can be made non-complying

  • In serious cases the ATO can make the fund non-complying. The fund is then taxed at 45% on its income and, in the year it becomes non-complying, on the market value of its assets, less certain contributions.
  • That hits every member of the fund, including a spouse or family members who had nothing to do with the false application.

7. Other consequences

  • The auditor will likely have to report the breach to the ATO in a contravention report. That often leads to closer ATO scrutiny of earlier years and of other transactions.
  • Co-trustees can’t rely on having been passive. Every trustee or director is responsible for the fund’s compliance, even if they didn’t sign the application.
  • Blaming the promoter doesn’t remove the trustee’s liability, even where a clinic, facilitator or “super access” service prepared the paperwork.
  • The money is permanently gone from retirement savings, along with the growth it would have earned. Putting it back is limited by the contribution caps.
  • Exposure to penalties, tax debts and possible bankruptcy can damage the trustees’ credit, finances and reputation, and affect their employment or professional registration.

What helps: if a false application or improper payment has already happened, a voluntary disclosure to the ATO before it starts a review usually leads to significantly lower penalties. It also gives the trustees more say in how the breach is fixed.

The exact penalty amounts and offence provisions are worth checking against current ATO and legislation sources before using them with clients, and serious cases should go to a lawyer. I’m not a lawyer, and this is general information only.

Further reading

This article contains general information only and does not take into account your personal objectives, financial situation or needs. Before acting, consider whether it is appropriate for you and seek personal advice. Sonas Wealth Pty Ltd is a Corporate Authorised Representative of Viridian Advisory Pty Ltd, AFSL 476223.

#SMSF #Superannuation #SMSFTrustee #EarlyReleaseOfSuper #FinancialPlanning #MedicalTreatmentplies with relevant superannuation and tax regulations before implementation

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.

Please consider passing on this article to family or friends. Pay it forward!

Liam Shorte B.Bus FSSA™ AFP

Financial Planner & Fellow SMSF Specialist Advisor™

Logo indicating a Fellow SMSF Association Specialist certification, featuring a hexagonal shape with 'SMSF FELLOW' text and additional explanatory text.

      

Logo of Sonas Wealth featuring a stylized tree design, with the words 'SONAS WEALTH' and the tagline 'CREATE - ENJOY - TRANSFER' below it.

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.