In the sometimes morbid world of estate planning, it can be easy to bury your head in the sand and avoid having to make decisions that surround your death, or the death of a loved one.

However, having those conversations and organising things like a will ahead of time is the best way to secure your family’s future.

This is the same for people with a Self-Managed Super Fund, and the following is a real example of a situation that comes up fairly regularly.

The situation in question is a single-member superannuation fund and the member had recently died.

The deceased member had seemingly done everything right, had a will and a binding death benefit nomination (BDBN) and reviewed them recently before his death. However, things can be overlooked, as was the case here.

The Will

There are two common myths with Self-Managed Superannuation Funds (SMSFs) and a deceased estate. One is that the trustee must take direction from the estate; and the second is that legal personal representatives are required to be appointed as trustees of the SMSF. In actual fact, neither of these are correct.

Whilst it may be prudent, the Trustees are not required to pay attention to the will, and the fund can continue with a single trustee for up to 6 months before it ceases to be a SMSF.

The BDBN

With many nominations, the children and surviving spouse are nominated as dependent beneficiaries. However, the tax consequences of distributions from the fund are rarely taken into account, and these can prove to be significant.

The Problem

Back to the specific example at hand – the deceased member had been divorced and remarried, had 3 adult children to his first wife and 1 dependent child with his new wife. The will had his eldest son, who is also a trustee of the fund, and his new wife as legal personal representatives. Unfortunately, neither could agree, let alone get along. The BDBN was 30% to each adult child and 10% to the new wife. The fund had $680,000 in the member account, $350,000 taxable and the balance tax free.

The outcome

The adult son was already a trustee and in accordance with Section 17A(3) could appoint a legal personal representative as the trustee, however chose not to and proceeded under Section 17A(4), which meant the fund could continue for 6 months after the members death before it failed to meet the definition of a SMSF.

The benefit must be paid in accordance with the valid BDBN and cannot be disregarded, which meant a benefit of $204,000 to each of the adult children, $68,000 to the surviving spouse and nothing to the dependant child.  Each of the adult children paid $17,850 each tax, a total of $53,550.

There are a number of opportunities missed here. Firstly, the member’s young child will not see any benefits from his father’s SMSF; and the tax obligations could have been mitigated with some careful planning.

The bottom line

A massive takeaway from this case is that in SMSFs, estate planning and other asset distribution matters, careful planning and review is essential. This will make sure that in the event of your death, your assets go to exactly who you want, and are distributed accordingly.

It can also save a lot of headaches for your surviving family, and allow them to look after themselves in a time of grief and loss.

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  • This is why it’s so important to see both an accountant and financial planner when dealing with smsf and estate planning.

    Reply


  • Thanks for the tips and further insights.

    Reply


  • Wow, I’m going to flag this with my accountant

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  • I had no idea that super funds were taxed! My partner has one and we both assumed if anything happened to him, the fund would go to our kids. Although he also hadn’t put it down that they’re to be beneficiaries, he just assumes it will go to them. Paying tax on super payouts is a big shock to me though!!!

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  • This is a good article as learned quite a bit

    Reply


  • Very complicated; and unfortunately not something people really want to think about.

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  • I’m not good with these matters at all.

    Reply


  • Great article i learnt a lot of things that I wasn’t aware of before thanks

    Reply


  • This is very handy, and something we need to seriously ensure is set up well.

    Reply


  • Great to see some useful articles like this thanks

    Reply


  • I think estate planning is vital if you have kids.

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  • Never ever thought about this, thanks

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  • The take away message from this article on finance is careful planning and good advice.

    Reply


  • I think good advice is all key with these situations it can save a lot of headaches.


    • So true! Forward planning and organisation does pay off .

    Reply

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