“Unlike the often complex and drawn-out process of managing estate affairs through probate, SMSFs offer a more straightforward path,” he said.

“With an SMSF, the transfer of a deceased member's superannuation interests can typically be done directly within the family's fund. This method not only bypasses the intricate probate process but also reduces the likelihood of family provision claims that can arise during estate distribution.”

However, he warned that it is important to understand the rules around this to ensure that your wishes are carried out smoothly and without legal complications.

There are a number of possibilities for an SMSF in terms of their estate planning and the allocation of their superannuation benefit which are regulated by the SIS Act. For example, if the beneficiary is a spouse, they can receive a death benefit as either a lump sum, income stream or both.

If the beneficiary is a dependent child under 18, they too can receive the benefit as a lump sum or income stream, but the income stream must cease when they turn 25.

“Navigating the maze of SMSF death benefits isn't just about understanding who gets what, it’s about grasping the essence of the term ‘dependant’,” Abbott said.

“There are different laws – SISA and ITAA 1997 – that paint different pictures of who qualifies. Under SISA, even non-financially dependent children are considered dependents. In contrast, tax laws are stricter, reserving tax breaks for a narrower group deemed dependents, emphasising financial interdependence.”

Those who can receive death benefits tax-free include a deceased person’s spouse or former spouse; a deceased person’s child, aged less than 18; any other person with whom the deceased person had an interdependency relationship just before he or she died; or any other person who was a dependant of the deceased person just before he or she died – that is a financial dependant.

“The concept of financial dependence has intrigued courts for over a century, touching on workers' compensation, taxes, and superannuation,” said Abbott.

“For super there have been two significant cases concerning the meaning of financial dependent, for the purposes of the superannuation laws — Malek v FC of T 99 ATC 2294 and Faull v Superannuation Complaints Tribunal [1999] NSWSC 1137.”

He continued that in Malek’s case, Antoine Malek was 25 when he died. He was single, had no children and, before his death, he and his widowed mother lived together. Mrs Malek received a disability support pension of approximately $153 per week, but her accountant estimated that Antoine Malek contributed approximately $258 per week to Mrs Malek’s living expenses for food, mortgage payments, taxi fares, medical expenses and other bills.

“The tribunal reviewed the cases on financial dependence and in its decision cited the following authoritative statement from Gibbs J of the High Court in Aafjes v Kearney (1976) 180 CLR 1999 at page 207,” he said.

“Gibbs J said ‘In Kauri Timber Co. (Tas.) Pty. Ltd. V. Reeman (1973) 128 CLR 177 at pages 188–189, I accepted that one person is dependent on another for support if the former in fact depends on the latter for support even though he does not need to do so and could have provided some or all of his necessities from another source. I adhere to that view.’”

The Administrative Appeals Tribunal held that Mrs Malek was financially dependent because the financial support she received from her son maintained her normal standard of living. Moreover, she was reliant on the regular continuous contribution of the other person to maintain that standard.

“In Faull’s case, the Court held that the mother of 19-year-old Llewellyn Faull was a financial dependent of his at the time of his death and determined that his death benefit in its entirety should be paid to her,” Abbott said.

“At the time of her son’s death, Mrs Faull had regular employment that earned her income of $30,000 per annum. Her wages were supplemented by an amount of $30 per week paid by her son as board and lodging. Although the sum paid to Mrs Faull every week by her son was small, the court stated that ‘the payment of that amount augmented her other income and, to that extent, she was dependent upon the deceased for the receipt of some of her income. Accordingly, she was partially dependent upon the payments made by the deceased’.”

Abbott said APRA's guidelines break the issue down further and state that complete financial dependence isn't necessary.

“What matters is the regularity of support, making even partial dependence sufficient for SMSF death benefits. This flexibility means that mutual financial dependence can also qualify under payment standards,” he said.

“The ATO also provides private rulings on cases, assessing whether adult children can be considered dependents based on the specifics of each case.”