As many SMSF members are now in pension phase and superannuation in general is a major asset for Australians, there are 5 essential issues that, if not addressed adequately, can cause inequity or unintended consequences to members or their families. This is not an exhaustive list, but what we see as the more prominent issues:
- Your Will cannot deal with your super;
- Binding death nomination issues;
- Accumulations account may be left in limbo;
- Have you got an enduring power of attorney?
- The importance of the SMSF deed.
Your Will cannot deal with your super
SMSF assets are almost always dealt with separately to your estate pursuant to your Will, so it is essential to see a lawyer with knowledge about SMSFs when you prepare Wills to ensure the SMSF assets are dealt with as you wish.
Binding Death Nomination* (BDN) issues
If you have signed a BDN:
- has it been drawn up and signed correctly? If not, it may fail to operate as intended when you die. There have been numerous cases in the Courts in recent years about the validity or not of BDN’s and whether they are binding on the trustee; and
- will the BDN expire after 3 years OR is it a non-lapsing nomination? If it has expired by the time you die, whoever is controlling the SMSF going forward will decide who of your dependents will receive your super. This can be particularly hazardous in blended families.
- *a binding death nomination is a written nomination signed by a member of a super fund directing the trustee to pay the member’s superannuation as the member directs when he or she dies. It is enforceable against the trustee and ensures your super is paid as you intend.
Accumulations Account may be left in limbo
Do you have an accumulation account as well a pension account? – that is, for those receiving a pension and whose super balance on or after July 2017 exceeded the Transfer Balance Cap of $1.6M and therefore have the excess in an accumulation account. Your pension will probably revert to your spouse when you die (check with your accountant), however your accumulations account will not revert to your spouse. Your accumulations account needs its own binding death nomination to ensure certainty of where it ends up after you die.
Have you got an enduring power of attorney?
Have you planned ahead for when you can no longer make decisions or find it more difficult to make decisions about your SMSF? An attorney appointed by an enduring power of attorney document (a spouse or close family member) may be able to take over as trustee or director of the trustee company when you are not in a position to continue. However, an appointment is not automatic, a legal deed is required when the time comes to appoint a new trustee or if it’s a trustee company, the constitution of the company reviewed to ensure an attorney can be appointed. You will need to have an enduring power of attorney in place well before an attorney needs to use it.
The importance of the SMSF trust deed
The terms of the trust deed may require updating if they are old. It may be the case, for example, that the terms do not allow a binding death nomination or an attorney will not have the power to be appointed trustee in your place. Unless the terms of the deed are followed precisely, if there is a dispute within the Fund, the deed terms will determine the outcome.