The SMSF Association and CBA recently produced a report indicating that more than half of SMSF members do not have an up-to-date Will or a succession plan. This report surveyed 801 SMSF trustees, as well as 535 individuals without an SMSF, and found that while 78% of them have a Will, only 49% actually have one that’s up to date.

Importantly, not only do SMSF need to have an up-to-date Will – “everyone” who is a member of an SMSF needs to put into place an Enduring Power of Attorney.

Why?

This is because if a member loses their mental capacity, perhaps through having a stroke or becoming a sufferer of dementia, they will no longer be able to be a trustee of their fund, or a director of the corporate trustee of their fund – putting at risk the complying status of the fund.

If members do not address this situation within the 6 month period of grace allowed under Section 17(A)4 of the SIS Act 1993, the consequences for their fund and their retirement savings will be very serious.

Conversely if all members of the SMSF have an up-to-date EPOA it makes things much simpler in the event:

  • If a member loses capacity – because their enduring attorney can become the trustee or director of the trustee in their place under Section 17A(3) of the SISA, or
  • If a member departs overseas indefinitely – because their (resident) enduring attorney can become the trustee or director of the trustee in their place to avoid fund residency issues.

It is important that you need to ensure (on an ongoing basis) that the person nominated as enduring attorney is not a disqualified person (eg, someone convicted of an offense involving dishonesty) otherwise they will not be able to act as a trustee or director of the trustee in place of the member.

The other important estate planning tool that all SMSF members need to have or to consider is a binding death benefit nomination (“BDBN”).

Why? This is because a Will does not automatically deal with an interest in the superannuation fund, since an SMSF is a separate trust so that its assets are not part of a member’s personal estate.

Therefore the only way that a member can dictate to whom their super death benefits will go is via a BDBN. Ideally the BDBN should be non-lapsing, in that it does not need to be renewed every three years (as is often the case with a public offer retail fund) plus it will still be effective if the member loses capacity in the meantime.

So it is now time for all of us to review our estate planning strategies, particularly members of a SMSF. At least the following should be prepared in accordance with an overall estate planning strategy.

  • An up-to-date Will;
  • An Enduring Power of Attorney; and
  • A Non-lapsing Binding Death Benefit Nomination.

Please contact us should you not have in place any of the above components of an estate planning strategy for your SMSF.

 

Note: This article recently appeared in Professional Planner magazine and was sourced from Townsends Business and Corporate Lawyers.

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David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

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