why proper succession

17 Jul


Posted at 13:10h
For members of self-managed superannuation funds (SMSFs) in Australia, preparing for loss of capacity or death is crucial. One important consideration is ensuring that the SMSF’s trust deed is well-constructed.

With over 600,000 SMSFs managing almost $900 billion of assets for over a million Australians, it’s vital that each SMSF’s trust deed outlines the rules for establishing and operating the fund, including its objectives, membership, and payment of benefits.

However, what happens when a member becomes incapacitated or passes away? It’s important to ensure that the trust deed is worded in such a way as to enable the implementation of the member’s wishes to the extent that they are consistent with superannuation laws.

For SMSF members, it’s worthwhile to consider seeking tailored professional advice from an SMSF specialist to ensure all the boxes are ticked when it comes to succession planning.

Binding Death Benefit Nominations

One important aspect to consider is preparing binding death benefit nominations, which direct the fund’s trustee to pay the benefit to either a legal personal representative or one or more eligible dependants of the member. However, depending on the wording of the trust deed and the nomination, a binding death benefit nomination can expire after just three years or any shorter period specified in the trust deed, unless it is renewed.

Recently, the High Court ruled that a validly made binding death benefit nomination can last indefinitely if the trust deed’s wording is structured to avoid the three-year automatic expiry. This highlights the importance of seeking professional advice on the wording of your trust deed covering death benefit nominations, as well as your nomination form.

Executing the trustees wishes

Another important consideration is preparing for loss of capacity or death. It’s essential to consider who would take control of the SMSF in these situations, as a range of legal factors and restrictions determine who can operate the SMSF or make decisions on behalf of the member. Seeking expert legal and financial advice on these matters can help avoid inconvenience, confusion, and conflict in the future.

Reversionary pension nominations

Reversionary pension nominations can be important for some SMSF members, particularly those with a high tax-free component or expecting a life insurance payout upon their death. However, some SMSF trust deeds prioritize a reversionary pension nomination over a binding death benefit nomination, leading to unexpected or unintended outcomes after a member’s death. It’s crucial to ensure that reversionary beneficiary nominations are permitted and enforceable under the terms of the trust deed.

Seek expert advice

In summary, SMSF trust deeds can be complex, and it’s essential to structure them to align with your wishes in the event of incapacity or death. Seeking professional advice from licensed financial advisers or other qualified professionals can provide specialized advice based on your circumstances. Before making any investment decision, it’s important to consider your objectives, financial situation, and needs, and review the disclosure documents for any financial product. Past performance information is not an indication of future performance.

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