Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 556

Meg on SMSFs: When the first member of a couple dies

In a monthly column to assist trustees, specialist Meg Heffron explores major issues on managing your SMSF.

I’ve written before about some of the steps we can all take to ‘future-proof’ our SMSFs in anticipation of the death of a member and even steps that can be taken after a member dies. But some recent work with a longstanding client who has just lost his wife reinforced for me that there is a vital period shortly after the death of the first member of a couple that is probably unique enough to warrant a separate discussion.

So at the risk of being unduly morbid – this article is about exactly that: what to do quickly and what to do slowly when your spouse dies. Throughout, I’ll assume the intention is that the surviving spouse will inherit the money one way or another. While not all couples work this way, it’s the most common outcome and certainly the one with the widest array of decisions to make.

Perhaps the most important thing to realise is that legally, very little needs to happen urgently in an SMSF when the surviving spouse is already a member and trustee. We know the deceased is no longer trustee and that needs to be reported to the ATO and, in the case of a corporate trustee, to ASIC. In fact, the death may prompt a move to a corporate trustee for the first time which has its own stream of work (setting up a company, moving the investments to their new owner etc). That’s important but the long-term trustee structure doesn’t have to be resolved urgently. There’s a 6-month window where it’s entirely legal to have, for example, just one individual trustee.

We also know that ‘something needs to happen’ with the deceased’s super benefit – it’s not allowed to just stay in the fund or get moved across to the surviving spouse’s super account. But again, the legal requirement is to deal with the death benefit “as soon as practicable”. The ATO has a rough rule of thumb that this means somewhere within 6 months. There’s no urgency.

Moving quickly

To my mind there are really only two things that should happen quickly.

First, if the deceased was receiving a pension, double check to see whether it was reversionary (continued automatically to the spouse). If it was, the normal minimum pension has to be paid before the end of the financial year. This will be the amount worked out at the start of the year – ie, whatever it would have been if the member hadn’t died.

If the pension wasn’t reversionary, nothing more should be paid out of the deceased’s pension(s) after they died. Any payments made after death will be death benefits – and that’s not necessarily the ideal result. So unless the spouse also has a pension and wants to keep taking the regular payments (knowing they’ll all come from their own pension instead of being shared), adjust any existing direct debits out of the fund.

The second thing to check is more about the surviving spouse: if they were to inherit as much as possible of this super as a pension (and we’ll come to that decision later) what would that do to their total super balance? The reason this is important is that sometimes it means there is a limited time available to make decisions about contributions for the survivor.

To explain using an example, consider Trish (age 70). At 30 June 2023, she had $1.5 million in super. Her husband Matt (also 70) just died in April 2024. He also had $1.5 million in super. Let’s assume they intended their super to go to each other and Trish wants to leave as much as she can in their SMSF. If Matt’s super had already been converted to a pension and it was reversionary to Trish, her total super balance will immediately become $3 million.

That’s significant.

It means she has too much in super to make non-concessional contributions in 2024/25 and beyond. That’s because she can only make non-concessional contributions in 2024/25 if her total super balance at 30 June 2024 (the previous 30 June) is less than $1.9 million. Trish might want to move quickly and get one last contribution in (say $330,000 non-concessional contributions) during the last few months of 2023/24. (To do this, she’d use the special rules that allow people with balances at Trish’s level - $1.5 million at 30 June 2023 – to contribute three years’ worth of the normal $110,000 non-concessional contributions cap at once. Effectively using her 2023/24, 2024/25 and 2025/26 caps all at once while she still can.)

Even though her super has now gone up to $3 million in value in April 2024, it doesn’t affect her ability to make contributions this year. For this year, that’s all based on the size of her super balance back at 30 June 2023 ($1.5 million).

She might not want to add to her super (she does have $3 million now, after all). However, she might still value the chance to make some last ditch non-concessional contributions. She could, for example, quickly take a lump sum from Matt’s pension account that she re-contributes to her own super before 30 June 2024. Why? Because if Matt’s super has all come from employer contributions and earnings, it will all be taxed at 15% (+ Medicare) if their adult, financially independent children inherit it when she dies. If she takes some out and puts it back in again, that bit will be tax free to them when they eventually inherit it.

But this all assumes Matt’s super went to Trish automatically via a reversionary pension. What if his super was paying a non reversionary pension? Or not paying a pension at all (ie, still accumulating)?

The key difference here is that Matt’s super doesn’t automatically get added to Trish’s total super balance. In fact, that will only happen if and when Trish uses that money to start a new pension from his balance.

Moving slowly

What if she moves slowly so that doesn’t happen until 1 July 2024?

Then, Trish’s total super balance will still be less than $1.9 million at 30 June 2024 (it will be just her own $1.5 million until the next day). So she can make non-concessional contributions in both 2023/24 and 2024/25. For example, she could contribute $110,000 in June 2024 (using just one year’s contribution cap) and a further $360,000 in July 2024, using the next three years’ caps all at once while she still can. (Contribution caps are going up next year – that’s why it’s $360,000 rather than $330,000.)

Importantly, Trish should think about these things urgently so that she can take action before 30 June 2024 if she needs to.

Another big decision to make, of course, is what she’s going to do with Matt’s super in the long run. It can only stay in their SMSF if it’s paying a pension to Trish. What if Trish already has a pension and has already used up her ‘transfer balance cap’ (the lifetime limit on the amount anyone is allowed to put in a super pension in retirement). It may look like she hasn’t – after all, this cap is $1.9 million these days and her balance was only $1.5 million. But in fact, back when her pension started the cap might have been $1.6 million. Perhaps she started a pension with the full cap amount, and it’s drifted down in value over the years as she’s taken pension payments. Unfortunately, she won’t get to put anything extra into a pension now just because the cap has increased. If she used it in full in the past, she’s considered to have used it in full forever.

But she can stop her own pension and put that balance back into an accumulation (non-pension) account. The reason that’s a good thing is that it gives her $1.5 million worth of transfer balance cap ‘back’. Conveniently in this example, that’s just enough to allow her to turn Matt’s super into pension. People often find they switch their own super back to accumulation phase when they inherit super from a spouse for exactly this reason – they want to leave their inheritance in super. They can only do that if they can convert it to a pension, and so they replace their own pension with one from their spouse’s super.

Of course, if Matt’s pension was reversionary to Trish, it will have moved to her name immediately – she’ll have two pensions (adding up to $3 million – way too much) running at the same time. Fortunately, the law recognises people won’t be able to respond instantly when that happens. There is a specific rule giving people like Trish up to 12 months to sort things out.

And this is another scenario where thinking quickly but moving slowing could be helpful for Trish. The great thing about having both those pensions running is that Trish’s SMSF doesn’t pay any income tax on investment income like interest, rent, dividends and even capital gains. (This is a generous tax break available for super pensions in retirement.) As soon as she sorts things out by stopping her own pension and putting it back into an accumulation account, the SMSF will start paying income tax again – on roughly half its investment income.

If I was Trish, I’d be wanting to put that off for as long as possible – probably the full 12 months.

In fact, funnily enough, this great tax benefit for the SMSF will continue for a time even if Matt’s pension wasn’t reversionary (so technically it stopped as soon as Matt died). That’s because – again – the law recognises that people can’t re-arrange their affairs immediately. So while this pension is in limbo, tax law continues to treat it as a normal pension.

Finally, Trish’s position is such that she’s able to leave all Matt’s super in their SMSF because, after some re-arranging of her own pension, she could convert the full amount to a pension. What if Matt had a lot more super? Too much for Trish to put into a pension? Well, that has to be paid out of their fund. That creates a whole other stream of decisions – what assets will she sell to move a large amount out of super? If Matt has both a pension and an accumulation account, which one will she take this large amount out of? Is there an ideal time to make the payments (quickly or slowly)? And more. Believe it or not there are options and ‘best approach’ answers to all of these questions. A topic for another day.

All in all, the surviving spouse has a lot to think about when a member of an SMSF dies. And while it pays to understand the options quickly, often they’re best served by moving a little more slowly.


Meg Heffron is the Managing Director of Heffron SMSF Solutions, a sponsor of Firstlinks. This is general information only and it does not constitute any recommendation or advice. It does not consider any personal circumstances and is based on an understanding of relevant rules and legislation at the time of writing.

For more articles and papers from Heffron, please click here.


Smarter SMSF
May 07, 2024

Important topic! SMSFs can be complex, especially after a loss. Sharing this info could be helpful for couples with SMSFs.

Meg Heffron
April 26, 2024

That will teach me to answer questions on my phone - thanks for pointing out that non concessionals can go right up to 75 Geoff - you’re absolutely right ! A pretty bad typo …

Ron Fox
April 22, 2024

A most important point has not been addressed; that is, if Meg has adult non-dependent children, they stand to pay many tens of thousands from the estate in tax should Meg die. Would it not be prudent to wind-up the SMSF so that this tax liability not arise.

Peter C
April 22, 2024

So what happens if Trish lives for another 20 or 26 years? Better to leave it in a tax free super environment, and let the kids pay the small amount of tax on the concessional part of the windfall they will receive.

Meg Heffron
April 22, 2024

For sure Ron - it will depend a lot on the surviving spouse’s age, other income, health etc as well as the split of the super between tax free and taxable components. Preparing for the “second death” will almost certainly involve making choices about when to get out of super entirely (or almost entirely). Even if that happens pretty quickly after the first death, some of these steps can still be useful in managing the period in between. For example - there’s no risk in leaving tax free components in super. So the ability to make some last ditch contributions could be handy. Similarly even if you intend to wind up the SMSF, there are often tax benefits to attacking that over a few years.

Mark B
April 21, 2024

Great article Meg and one I will retain for sometime in the future (hopefully distant future!).

Just at the end of the article you indicate that Trish is able to leave Matt's super in the SMSF. Is this the case regardless on what status Matt's super was in, ie Accumulation or Pension Reversionary or Non Reversionary?
I am guessing that Trish's position was specific to Matt having a reversionary pension but was a little unclear.

Mark B
April 21, 2024

Well after another re-read I see that it appears irrelevant what status Matt's super was in.
The inherited super amount must be converted into a pension (compelled or by choice) by Trish or withdrawn as a death benefit.
I am now wiser!

Meg Heffron
April 22, 2024

Absolutely right Mark. It doesn’t matter what state it was in before death. All that matters is : can whoever inherits it take it as a pension ? If they can, it can stay. That’s why adult children can’t usually leave a parent’s super where it is (they have to take it out as a lump sum) - because the rules generally don’t allow an adult child to take a parent’s super as a pension.

April 19, 2024

If after a spouse dies and the surviving spouse receives a reversionary pension, can that reversionary pension be readily transferred to say an industry super fund if the surviving spouse has no interest in managing the SMSF?

Meg Heffron
April 19, 2024

Sure can Don - this hasn’t always been possible but it is these and is common in fact if the surviving spouse wasn’t the one primarily engaged in the SMSF.

Graham W
April 18, 2024

From July 1 the tax- free threshold for a single senior rises to $35,813. For a couple it will be $31,888. I would like a more realistic strategy for the more median couple with around $1 million plus other assets precluding a pension.
In my opinion I would move some funds from the super fund into a family trust. If this was mainly cash funds there would be no capital gains tax and the interest earned covered by the tax free threshold. The amount transferred would need to be such that it would allow for the reinvestment of the interest.
There could be a benefit if the minimum pension amount from the super fund was greater than required.
The flexibility of having funds in two entities plus a person's own name seems to be considered.

April 19, 2024

"I would like a more realistic strategy for the more median couple with around $1 million plus other assets precluding a pension.":

No Age Pension:
cutoff $1,012,500
return = 5% * 1012500 = $50,625 / y

Full Age Pension:
threshold $451,500
return = 5% * 451500 = $22,575 / y
AP = 26 * 1682.8 = $43,752.80 / y
Home improvement gain = 6% * (1012500 - 451500) = $33,660 / y
Total income = $99,987.80 / y

Efficiently stuffing into home improvement Age Pension Assessable Assets in excess of $451,500 Full Pension threshold doubles income.

April 19, 2024

Great reply Dudley. Your strategy is the optimum.

April 19, 2024

More stark / dramatic allowing for 3% inflation:

No Age Pension:
cutoff $1,012,500
real return = ((1 + 5%) / (1 + 3%) - 1) * 1012500 = $19,660.19 / y

Full Age Pension:
threshold $451,500
return = ((1 + 5%) / (1 + 3%) - 1) * 451500 = $8.766.99/ y
AP = 26 * 1682.8 = $43,752.80 / y
Home improvement gain = ((1 + 6%) / (1 + 3%) - 1) * (1012500 - 451500) = $16339.80 / y
Total income = $68,859.60 / y

Real income 3.5 times larger.

April 22, 2024

Hi Dadley
I like your way of showing everything with formulas. Thanks!
However, can you please explain in your above calculation, the Home improvement gain, resulting $33,660/y, this to me, is not part of your income that you can spend, but a capital gain. Please correct me if I'm wrong.
But if I'm correct, how can it be enough to live comfortably on an annual income of 22575+43752.8=66327.8?

April 22, 2024

"Home improvement gain, resulting $33,660/y, this to me, is not part of your income that you can spend, but a capital gain.":

Capital gain is cash income when realised; when home is sold or mortgaged. Cash then spendable.

"how can it be enough to live comfortably on an annual income of 22575+43752.8=66327.8?":

By only spending where it results in value for money improvements in comfort. For a typical retired home owner couple that is about $30,000 / y.

April 18, 2024

great read.

Rob G
April 18, 2024

Meg - could I suggest Preemptively?

We have a Death Tax in Australia of 17% on the taxable portion of Super - for retirees, totally avoidable if the funds are withdrawn prior to death. While you may not know your Date of Death, in most cases it is not "instant" - maybe weeks, months or years. Your Trustees/Executors/Beneficiaries should have a clear understanding of the problem and clear instructions what to do and when. My Wife and my Children have such instructions. My personal plan is that if I make 85, it all gets pulled anyway!

Meg Heffron
April 19, 2024

Definitely a reasonable plan Rob - but don’t forget that if your wife is still alive when you hit 85 there’s no need to withdraw it. She can always inherit tax free and can in fact stage with withdrawal to optimise tax in the SMSF (this isn’t relevant for everyone but can be for some). Where pre-emptive withdrawal is most valuable is when there’s only one of you left.

April 22, 2024

You don't need to wait to 85 to withdraw your super to avoid death tax. You can withdraw as soon as you reach your preservation age, then contribute back into super as non-concessional contributions.

Meg Heffron
April 25, 2024

You're probably across this Lily but just in case others aren't:
- some people can withdraw but not put it back in again (if they have too much in super - non-concessional contributions are only available to those with less than $1.9m)
- obviously there's a limit on non-concessional contributions in terms of amounts and timing (they can't go beyond 65) - so it may not be possible to take it all out and put it all back in
- just reaching preservation age doesn't give you open slather to take your super out. It allows you to start a transition to retirement pension (which has an upper limit of 10% of your super you can take out each year). For most people, the only way to take more out is if they've ALSO retired or turned 65

But the strategy you've described - a "recontribution strategy" is DEFINITELY an essential consideration for anyone approaching 60 / 65. It potentially removes all (or at least a lot) of the worry around death taxes. It's also very easy to implement in an SMSF.

Geoff F
April 25, 2024

Hi Meg,
In your response to Lily, you said "obviously there's a limit on non-concessional contributions in terms of amounts and timing (they can't go beyond 65)" - I thought non-conc contributions could be made to super up to age-75 (subject to still being below any applicable TSB limits) ?


Leave a Comment:



Common confusions with death benefit pensions


Most viewed in recent weeks

Where Baby Boomer wealth will end up

By 2028, all Baby Boomers will be eligible for retirement and the Baby Boomer bubble will have all but deflated. Where will this generation's money end up, and what are the implications for the wealth management industry?

Are term deposits attractive right now?

If you’re like me, you may have put money into term deposits over the past year and it’s time to decide whether to roll them over or look elsewhere. Here are the pros and cons of cash versus other assets right now.

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

How retiree spending plummets as we age

There's been little debate on how spending changes as people progress through retirement. Yet, it's a critical issue as it can have a significant impact on the level of savings required at the point of retirement.

Meg on SMSFs: $3 million super tax coming whether we’re ready or not

A Senate Committee reported back last week with a majority recommendation to pass the $3 million super tax unaltered. It seems that the tax is coming, and this is what those affected should be doing now to prepare for it.

How much do you need to retire comfortably?

Two commonly asked questions are: 'How much do I need to retire' and 'How much can I afford to spend in retirement'? This is a guide to help you come up with your own numbers to suit your goals and needs.

Latest Updates


Is 'The Great Australian Dream' a sham?

Peter Dutton has made housing a key issue for the next election, pledging to “restore the Australian dream” of home ownership. It got me thinking about what this dream represents, how it originated, and whether it’s still relevant today.


Clime time: Taxing unrealised capital gains – is there a better idea?

The efficacy and fairness of establishing an unrealised gains tax regime will hopefully be hotly debated at the next election. We need better ideas on how to use the strategic and unique benefits of our massive super funds.


How long will you live?

We are often quoted life expectancy at birth but what matters most is how long we should live as we grow older. It is surprising how short this can be for people born last century, so make the most of it.

Investment strategies

What poker can teach us about investing

So-called ‘resulting’ is what poker players call the tendency to judge a decision based on its outcome rather than its quality. It's something that happens a lot in investing, though should be avoided at all costs.

Latest from Morningstar

Should you buy and hold an Artificial Intelligence portfolio?

For those with the patience to own an investment as volatile as the AI sector, buying and holding a stock basket might make sense. However, based on internet stocks’ history, you need not rush to do so.


The bull market in commodities may be just starting

The world is entering a higher cost environment which will hit the profits of companies in many sectors. A key beneficiary will be commodities, where supply shortages are meeting increasing demand from AI and green energy.


The challenges facing electric vehicles

Slowing demand and profit warnings from the EV manufacturers has seen analysts revise down their EV penetration forecasts. What's behind the slowdown, and are the issues a blip or something more serious?



© 2024 Morningstar, Inc. All rights reserved.

The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.