Prep-Work that Protects Your Wealth and Your Family
Estate planning is often misunderstood as something that starts and ends with a Will.
For SMSF members, in particular, this assumption can be an expensive one. Superannuation operates under a different legal framework to personal assets, and so, without proper preparation, even the most carefully drafted Will may not achieve your desired outcome.
There is good news, however; effective estate planning doesn’t start with complex documents but starts with some simple preparation. By taking some practical steps early, SMSF members can significantly improve confidence in their plans, reduce the risk of disputes, and ensure their wealth is transferred in line with their wishes once they’ve passed away.
Why Estate Planning Is Different for SMSF Members
Unlike personal assets, superannuation:
1. Is governed by superannuation law, not just estate law
2. Does not automatically form part of your estate
3. Is controlled by SMSF trustees at the time of death
This means estate planning for SMSF members must consider:
1. Who controls the fund
2. How death benefits are paid
3. Who receives them
4. How tax applies
Without preparation, decisions may fall to people you didn’t intend. Therefore, it’s critical that your Will is not only up to date, but technically sound, and clear on your intentions. Further, controls in the SMSF Trust Deed must be correctly set up and technically sound. Here’s 8 steps for SMSF members to set up and review all elements of estate planning.
Step 1: Before Any Documents are Drafted - Clarify Your Objectives
Before reviewing any documents, deeds or nominations, SMSF members should step back and consider:
· Who do I want to benefit from my wealth?
· Should benefits be paid immediately, or staggered over time?
· Is fairness more important than equality?
· Are there vulnerable beneficiaries or blended family considerations?
Clear planning and articulating these considerations is critical to the successful execution of your estate. Estate planning documents can only reflect what you’ve decided and documented, not what you may have meant or intended.
Step 2: Understand What Assets You Actually Control
Many people assume their estate is just everything they own. Actually, assets fall into four different categories:
1. Personally owned assets (bank accounts, investments, property)
2. Jointly-owned assets
3. Superannuation (including SMSFs)
4. Trust or company interests.
Upon death, each category of asset is dealt with differently. To simplify life for those left after your death, SMSF members should prepare a simple asset register identifying:
1. Which assets sit inside super
2. What assets sit outside super
3. How each asset is currently controlled
This step is a really important one, because it often reveals gaps or inconsistencies in planning, which may be amended in subsequent steps.
Step 3: Review Trustee and Control Arrangements
In an SMSF, control is everything. It’s fellow trustees (or directors of a corporate trustee) that decide how death benefits are paid, subject to the fund’s trust deed.
When Reviewing Trustee Structure and Controls:
1. Confirm whether the SMSF has individual or corporate trustees
2. Identify who controls the fund on death or incapacity
3. Review whether successor trustee or director provisions exist
Even where a Will exists, if control is unintentionally allocated via the Trust Deed, it can create a situation where estate planning intentions are overridden.
Step 4: Understand Your Death Benefit Options
Your preparation work here involves confirming what options exist, not yet choosing between them.
At this point, SMSF members should familiarise themselves with:
1. Any Binding Death Benefit Nominations (BDBNs)
2. Reversionary pension nominations
3. Trustee discretion under the trust deed
It’s important to note:
· Not all SMSFs allow binding nominations
· Nominations must comply with the trust deed to be valid
· Superannuation law defines “dependants” differently to estate law
Step 5: Consider the Tax Impact on Beneficiaries
Estate planning is not just about who receives assets, but how much they actually keep.
For SMSF members, this includes understanding:
· The taxable and tax-free components of super
· Which beneficiaries may pay tax (e.g. adult children)
· How timing and structure of payments affect outcomes
Even a high-level understanding of these issues helps ensure future strategies are aligned with your intentions.
Step 6: Align SMSF Planning with Your Will (But Don’t Confuse Them)
A really common mistake is assuming a Will controls superannuation. It usually doesn’t.
Therefore, sound Estate Planning preparation includes:
1. Ensuring your Will and SMSF arrangements don’t conflict one another
2. Understanding when benefits might flow via your estate
3. Identifying where coordination is required between advisers
This alignment of these arrangements avoids confusion, delays, and disputes during estate administration.
Step 7: Prepare for Incapacity (Not Just Death)
Estate planning isn’t just about what happens when you die. Therefore, when estate planning, SMSF members should also consider:
1. What happens if I lose capacity?
2. Who can act as trustee or director?
3. Are powers of attorney in place and compatible with SMSF rules?
Proper preparation here ensures continuity of control and compliance according to your wishes during your lifetime, not just at death.
Step 8: Document, Review, and Update Regularly
Estate planning is not static but should always be maintained and aligned with current circumstances or optimised according to your balance and SMSF law. For instance, preparation work should be revisited:
1. After marriage, divorce, or remarriage
2. When children become adults
3. As SMSF balances grow
4. When legislation changes
Keeping notes of intentions and decisions helps advisers implement appropriate strategies later, ensuring your plan evolves with your life and that of your family.
Next Steps
Getting the groundwork done early places yourself in a far stronger position to protect your wealth, reduce uncertainty, and ensure your legacy is carried out as intended.
Work with your SMSF, Financial Planning or Estate Planning specialist to achieve clarity on goals and alignment of documents and structures:
1. Get clear on who you want to benefit from your estate, including when benefits are paid in light of current circumstances
2. Get to know your assets, how your super is controlled and by whom after your death. Optimise the SMSF trustee structure and successor arrangements where necessary
3. Review any existing, or consider if it’s necessary to establish a Binding Death Benefit Nomination for your SMSF; plan for incapacitation and consider tax implications
4. Prepare to review and maintain settings, including when family structure, life or legislative changes occur
For support on detailed estate planning and SMSF controls, contact Prime Financial.
The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.
