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The role of estate planning in super
If you are planning to join the hundreds of thousands of Australians who have Self-Managed Super Funds, one of the critical areas to address in the set-up phase is how your super will be handled when you’re no longer here. We have outlined below some points that must be part of your estate planning and managing your SMSF.
- Binding Death Nomination
This is a written direction to the trustee of your fund instructing the trustee to pay your benefits to your nominated beneficiaries. These directions are binding on the trustee and override their discretionary power to distribute the assets normally contained within the superannuation trust deed. The most appropriate beneficiary will depend on your personal circumstances. As there may be tax implications, it is advisable to seek professional advice.
- Appointor share
If you are the only member of your SMSF with a corporate trustee, you may also consider issuing an appointor share in the company. This share becomes active when you die and gives the holder the right to appoint another director, who can then act to wind up the fund and pay the death benefits as required.
You should be aware that super benefits are not automatically paid to your estate but you can arrange for this to happen. This must be clearly set out in the trust deed. Upon your death the Executor of your will becomes your Legal Personal Representative (LPR) and manages the handling of your estate. Your LPR usually becomes a trustee of your SMSF until the death benefits are paid. It is important to choose an Executor who is capable of fulfilling this role.
- Super pensions
If your super fund is paying you a pension which will continue being paid to your dependant/s, you should consider setting it up as a Reversionary Pension. This means that when you die, the pension reverts automatically to the nominated dependant (who must also be a member of the fund), without the need to go through the process of the fund selling assets to pay a death benefit. Regulations ensure that pension funds continue to be exempt from tax until the death benefit is paid in full.
Establishing a Self-Managed Super Fund requires a lot of attention to make sure you meet the stringent regulations governing them and, just as importantly, it is congruent with your estate planning instructions. Always consult with an experienced professional in this area to get it right the first time.