“That's all quite structured, but the reality is, whenever an event occurs the order in which you deal with these scenarios is going to change. The trusteeship might not be so significant in certain circumstances. The member stuff may be what you contemplate up front and then consider what the outcomes for the fund will be.”

Miller said one of the elements often overlooked in death benefit payments concerns insurance proceeds, particularly when a member may be transitioning to retirement and was keeping their insurance in place.

“Also, when self-managed started, there was no requirement to consider insurance, whereas now it's part of the requirements to consider insurance and there has been an uptick in insurance held in SMSFs.”

“Insurance is a key piece in regard to estate planning, because you have to consider insurance part of the investment covenants, or the trustee covenants. A fund must also consider the insurance needs of the members, even if they have money outside insurance.”

He continued that because of this requirement, more people took up, or considered taking up, insurance inside their super fund, and it was therefore important that the trustee understood the impact of holding insurance in super at the beneficiary level and at the fund level.

“Insurance is traditionally considered as income, which is in TR2010/1 under what is a contribution. [It says] the proceeds of a policy will be treated as income, profit, or gain, from the use of the fund's existing capital, and not as a super contribution.”

“Therefore, we have to deal with it as income and it is then allocated on a fair and reasonable basis, based on SIS regulation 503, which means you can allocate all the proceeds to the interest from which the premium was made.”

However, Miller said there has been a draft change to that contribution ruling, and that same paragraph has been changed to reflect that insurance proceeds would ordinarily be treated as income, profit or gain.

“‘Ordinarily’ is a new additional word. It then says that where it is objectively determined that the purpose of the insurance payment is to benefit a member of the fund, the payment may be treated as a contribution. Of course, the insurance is not going to the member, it's going to benefit the beneficiary, so there's this element of this new ruling that suggests that insurance proceeds are going to be treated as contributions.”