The role of estate planning in super
If you are one of the hundreds of thousands of Australians who have Self-Managed Super Funds (SMSFs), one of the critical areas to address is how your super will be handled when you’re no longer here. We have outlined below some points that you should consider in managing your SMSF from an estate planning perspective:
- Who is trustee of your SMSF?
To qualify as an SMSF, you must appoint either at least 2 individuals or a company to act as the trustee of your fund. If you and your spouse are the only members of your SMSF, when one of you dies, the survivor of you will need to appoint another individual to be a joint trustee, or alternatively establish a corporate trustee to act in this role. Consider the arrangement that suits your needs, the needs of the other members of your fund, and best balances the costs and hassle of changing trustees down the track.
- Binding Death Benefits Nominations (BDBNs)
A BDBN is a written direction to the trustee of your SMSF instructing the trustee to pay your superannuation death benefits to your nominated beneficiaries. A BDBN is binding on the trustee and overrides the trustee’s discretionary power to distribute the assets normally contained within the SMSF trust deed. However, a BDBN must be current and technically valid in order to be binding on the trustee and can only be made in favour of particular beneficiaries (i.e. your legal personal representative and superannuation dependants). The most appropriate beneficiary will depend on your personal circumstances. As there may also be tax implications, it is advisable to seek professional advice.
- Reversionary Pensions
If your SMSF is paying you a pension which will continue being paid to your eligible dependants after you die, you should consider setting it up as a Reversionary Pension. This means that when you die, the pension reverts automatically to the nominated dependant (who must also be a member of the fund), without the need to go through the process of the fund selling assets to pay a death benefit. Regulations ensure that pension funds continue to be exempt from tax until the death benefit is paid in full.
You should be aware that super death benefits are not automatically paid to your estate unless you have arranged for this to happen via a BDBN. Upon your death the executor of your will becomes your Legal Personal Representative (LPR) and manages the handling of your estate. If you are an individual trustee of your SMSF, your LPR usually takes control as a trustee of your SMSF until the super death benefits are paid. It is therefore important to choose an executor who is trustworthy and capable of fulfilling this role.
- Enduring Powers of Attorney (EPA)
An EPA appoints another person to act on your behalf in relation to financial, legal and personal decisions. Depending on the terms of your SMSF deed, your attorney may be able to step into your shoes as trustee of your SMSF if you become incapacitated, to manage and control your SMSF and validate, confirm or make a Binding Death Benefits Nomination on your behalf. An appropriately drafted EPA is therefore essential.
As a large portion of our wealth nowadays is held within SMSFs, it is very important that the arrangements in relation to your SMSF are congruent with your estate planning intentions. Always consult with an experienced professional in this area to get it right the first time.
This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.