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Retirement,Self Managed Super Funds (SMSF),Superannuation,Trusts, Wills & Estates

Considerations For Your SMSF Estate Plan

28 May , 2015  

Nikhil (Nik) Sreedhar
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Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
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In planning for your future, your SMSF will be a large part of it, so plan wisely while considering possible situations. Among those different situations, be prepared for the worst one, such as the death or illness of a spouse, however unpleasant it is to think of. Perhaps if one is more involved than the other in the fund, what would happen if the more involved one were to pass? Would the fund be able to continue as normal, or would major changes have to be made? Could the surviving spouse take over as a director, or would they have enough expertise to carry out the SMSF effectively? Be sure to talk over these types of questions with your partner and with the members of the fund.

Once you have come to a decision in regards to what you would do in a worst-case scenario, make sure that it is also reflected in the documents of the fund. Be prepared also with any other documents that could resolve any disputes in awful circumstances. For example, a BDBN (binding death benefit nomination) when well-written can ensure the tax-effective succession of superannuation death benefits, yet it will only ensure these benefits up to three years unless it is non-lapsing. In most cases, SMSFs will not allow a BDBN to be made by the member’s enduring attorney, so if something would happen to the member (perhaps unable to function because of illness), then the BDBN cannot be renewed, thus a non-lapsing BDBN might be the best option for many SMSFs. Also, be certain that you look at the trustee constitution. Some may automatically authorise that the surviving member will carry on as sole director in a two-member fund with a corporate trustee, yet if this is not in place within the constitution, an amendment needs to be made. In this type of situation, most decide to update the entire constitution, but at least make sure that the constitution reflects this change in an amendment where it authorises this type of change in the event of death.

There is also another way to avoid conflict in a worst-case scenario: in the event that a member loses their ability to be a part of the fund (because of death or illness, or loses their mental capacity to make decisions properly), if all the members have the enduring power of attorney (and making sure that it’s up-to-date), then the member not present places their attorney as trustee or director. This also works if the member decides to live overseas indefinitely, and the fund wants to avoid residency issues that would come with an overseas move from a member (this could result in questions of taxing). However, continually make sure that the attorney does not have any convictions or else they will be removed from their position. Lastly, changing the structure of the trustee can also be beneficial; from an individual trustee to a single corporate trustee. In a single corporate trustee, there is greater simplicity in carrying on with the running of the trust after a death, bankruptcy, a move overseas, amongst other things. All of these benefits will be sure to put you in better standing with the Australian Taxation Office.

While operating your SMSF, while hopefully nothing traumatic happens, it does not hurt to prepare for the worst, as systems can help ease the pain of a difficult transition.

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