SMSFs: Wrapping up the five key SMSF estate matters you must consider

In the last video of our series examining the five key SMSF estate matters you must talk to your client about, Partner William Moore recaps the key points you need to consider.

During the course of this series, we have talked about a number of potential issues in the superannuation space and practical ways to avoid them.  The key message is dealing with superannuation is not as simple as having a death benefit nomination. To recap, five key points to consider are:

1.     Where does control of the superannuation fund pass? Ideally it should go to the person receiving the superannuation death benefits.  This can help avoid issues with death benefit nominations, delays and questions about validity of death benefit nominations.  In difficult situations, there is also the ability to tailor the SMSF deed to include special provisions (for example requiring the consent of a ‘guardian’, who acts as a check and balance, before decisions can be made about death benefits).

2.     Many clients are now in a situation where some of their superannuation has to come out of the superannuation environment due to transfer balance cap limits on the first to die.  For clients in this situation, consider if there are proper strategies in place to deal with amounts above the transfer balance cap, which can include:

a.     reversionary pension nominations;

b.     death benefit nominations to deal with the accumulation balance; and

c.     superannuation proceeds testamentary trusts.

3.     Do you have the right type of death benefit nominations in place?  Careful consideration is needed to work through what type of nomination is the right nomination.  This will depend on the circumstance, and on the control of the SMSF:

a.     non binding nominations can be great in the right circumstances, however where there is potential for conflict or a trustee who may not follow your wishes, they can be a recipe for disaster; and

b.     binding nominations can be better where certainty is needed, or you want to avoid those conflicts.

4.     What about capacity, compliance and SMSFs?  There can be disastrous repercussions where a loss of capacity is not catered for which leads to compliance issues or loss of control and flexibility.  These issues can be easily avoided where powers of attorney are in place, however it is a good idea to perform a ‘health check’ on the powers of attorney to confirm:

a.     are they in place and effective; and

b.     do they give the attorneys power to deal with superannuation nominations and superannuation death benefits where appropriate.

5.     For binding death benefit nominations, making sure you get the form of the death benefit nomination right is key.  There are many cases, including the examples we discussed in our previous video, where formalities have not been followed and litigation has resulted. Following any specific requirements in the trust deed is critical to avoid these issues, not to mention the time, delay and costs associated with litigation and Court proceedings.

Making sure you get these points right, and that the superannuation arrangements also work with the Will, powers of attorney, and broader succession plan is key to avoiding issues, and giving value and peace of mind to your clients.

Feel free to contact us with any questions, and we will speak again soon.