Self Managed Super Funds continue to be a popular choice for those wanting more control over their retirement savings. The focus within SMSFs is often on implementing strategies to boost your account balance or reduce the tax bill. But an equally important stage of the lifecycle is estate planning with an SMSF.
Estate planning and super
Estate planning is the process of planning and documenting your wishes for the distribution of your assets upon death. Some describe it as, “making the best plans to ensure the right people, get the right amount of money, at the right time”. And along with documenting your desired distribution, estate planning seeks to minimise the risk of any disputes.
Estate planning within an SMSF is not a substitute for traditional estate planning strategies and it should be considered in conjunction with your standard estate planning documents such as a Will, Power of Attorney etc.
Despite popular belief, superannuation benefits are not personally owned, they are held within a trust. This means they are not automatically dealt with by a Will, as a Will only governs assets you own personally.
Your superannuation is managed in accordance with the governing rules of your fund, also known as the trust deed. It is also managed in accordance with the Superannuation Industry Supervision Act (SISA).
So if you don’t own the money in your super fund, who decides what happens with it after you die?
The trustee of a super fund is responsible for making all decisions regarding the fund. The trustee also cannot take directions from anyone else when making such decisions. However, an exception is in the area of paying death benefits. Under section 59 (1A) of the SISA, a trustee is bound to pay a deceased member’s benefits only if a validly prepared and in effect notice has been given to the trustee.
Such a notice is commonly referred to as a Binding Death Benefit Nomination (BDBN).
Under section 59(1A), for a BDBN to be adhered to, it must:
- Be in writing.
- Be signed and dated by the member in the presence of two adult witnesses, neither of whom are mentioned in the notice.
- Contain a declaration by the witnesses’ that the notice was signed and dated by the member in their presence.
- Nominate the proportion of the benefit that will be paid to each person and that amount is certain and readily ascertainable from the notice.
- Nominate only persons that are the legal personal representative, dependant, or inter-dependant on the member.
Although these provisions are in the SISA, they need not necessarily apply to SMSFs unless expressly required within the fund’s trust deed. However, most SMSF Trust Deeds will outline the mechanism for members to make death benefit nominations that are binding on trustees.
It is important to note that even if a member has expressed their death benefit wishes or indications in some form, they are not binding on the trustee unless the strict requirements are met (see the QLD Supreme court case Munro vs Munro), although they may be taken into consideration by the trustee when deciding where death benefits should be paid.
For estate planning to be effective, it needs to be done thoroughly and in accordance with all relevant laws and governing documents. It is extremely dangerous to assume that your super account will automatically end up in your estate and distributed in accordance with your Will.
If you are unsure about your estate plans or have any questions about the steps you can take to implement your wishes, please get in touch with us at Align Financial.
What Can Align Financial Do For You? Visit our homepage to learn more about our service. If you would like to speak to us about your financial circumstance, please feel free to give us a call on 02 9913 9995. We are located in Narrabeen on the Northern Beaches of Sydney.
Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online