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Estate planning for a Self-Managed Super Fund trustee

The value in estate planning for a self-managed super fund trustee is in the certainty it provides in the event of the death of a member of the Fund (and for the surviving members when the deceased was the trustee).

What happens when a self-managed super fund trustee dies?

The consequences of the death of a SMSF trustee, or indeed of a shareholder in a company acting in the capacity as a SMSF trustee, can cause considerable problems for the superannuation fund if not carefully provisioned.

The Superannuation Industry Supervision (SIS) legislation is very prescriptive regarding the requirement to have trustees – and about who is eligible to act as trustee of a self-managed superannuation fund. A non-member of a SMSF is not eligible to perform the role.

The importance of estate planning for a SMSF trustee

Does your Will specify who gets your shares in the corporate trustee of your SMSF?

This issue is of particular importance in the case of an SMSF that has four members. If the trustee of that SMSF is a corporate trustee with all four members as directors, then planning is needed to ensure that potential problems arising on the death of one of the members are avoided.

The death of one of the members will leave the three surviving members as directors (together with the nominated legal personal representative of the deceased member pending determination of the death benefit and commencement of paying that out: see more on this situation below) – and subject to the voting rights attaching to the shares held by the respective members, any two of the three survivors could outnumber the other in any decision-making. This could prove particularly challenging when determining the distribution of the death benefits (assuming there is no valid binding death benefit nomination).

Consider this real-life example of failed estate planning for a self managed super fund trustee:

In the Katz v Grossman case, the deceased left a son and daughter. The deceased father’s will provided that his estate assets were to pass equally to his two children. Part of his wealth included about $1 million in an SMSF. Following his death, the SMSF was in the control of the daughter. The daughter caused the deceased father’s superannuation death benefit to be paid directly to her, bypassing his estate. Accordingly, the son did not receive half the superannuation as intended by the now-deceased father. The Court determined that the daughter was legally able to do this.

The circumstances of Katz v Grossman highlighted the importance, from an estate planning perspective, of:

  • how control of an SMSF passes in the event of the death of a member/trustee; and
  • the importance of considering the relationship between binding death benefit nominations and a deceased’s will.

This is just one of the serious issues that need to be considered during estate planning where a SMSF is involved – and a clear reason why people with even moderately complex structures should seek professional assistance with their estate planning.

Does your Will specify who will be your legal personal representative where individuals are trustees of your SMSF?

The nomination of successor trustees is important when a fund has individuals as trustees. The retirement, resignation or death of an individual trustee may give rise to the need to transfer assets and arrange for bank account changes unlike a company which has perpetual succession.

An SMSF may have a founder/appointer role vested in someone other than the members. This can be a powerful role as such a person may have the power to appoint or remove a trustee or vary the trust deed.

If successor trustees are to be nominated, the following issues should be addressed:

  • Age of the nominated successor (should be at least 18 years of age);
  • Whether the nominated successor is a disqualified person. An individual will be a disqualified person if the person has been convicted of an offence involving dishonesty, is an undischarged bankrupt or has been the subject to a civil penalty order under the Superannuation Industry Supervision (SIS) Act. A disqualified person cannot act as a trustee of a SMSF (of any other superannuation fund).

When planning the survivor arrangements in relation to the management and control of superannuation assets, the current views of the regulator (for SMSFs this is the ATO) need to be taken into account – particularly in so far as they relate to the treatment of income streams in place at the date of death.

Any successor trustee must still comply with the requirements of s17A of the SIS Act. However, a legal personal representative can act for a deceased member up to the time that their benefit commences to be paid by the fund.

NOTE: the following comment applies to any corporate structure involved in the affairs of a testator:

The relevance of specifying in your Will who will be the recipient of your shares in a private company lies within the rights given to shareholders under the company’s Constitution. The Corporations Law gives shareholders voting rights and allows them to vote out directors of the company (subject to any provision to the contrary in the constitution of the corporate trustee).
Shareholders thus hold a considerable amount of power and therefore care must be taken to ensure that appropriate beneficiaries of the shares are chosen and included in your Will. The beneficiaries holding the shares will have the responsibility of appointing any new director to the (trustee) company (of the SMSF) who in turn would, along with any other directors of the company, exercise their rights and powers as a director as they see fit: and that may not necessarily be consistent with the strategies adopted by the deceased.

Where can I get help with Estate Planning for a self managed super fund trustee?

The Continuum Financial Planners Pty Ltd Estate Planning service offers clients:

  • working with them to prepare the detailed information required for their appointed estate planning specialist lawyer; who can then
  • consider the client’s individual detail in light of their estate planning experience so as to design a plan appropriate to the client’s present and known likely circumstances; and where needed
  • provision of access to our referral connections of such professionals (to whom we are happy to refer you to match their expertise with circumstances such as your own).

The experienced advisers at Continuum Financial Planners Pty Ltd are available to guide you through the preparation of the information to refer to a legal adviser (estate planning specialist) and ensure that all relevant detail is provided to them. For an appointment to get your estate plan started, call our office (on 07-34213456), or use our website Contact Us facility.

More about Estate Planning…

This is the ninth in a series of 13 articles on the topic of Estate Planning: further articles in the series seek to bring clarity to some of the issues and implications to be dealt with in fulfilling the three key considerations of Estate Planning – getting the right amount of money, to the right beneficiaries and at the right time; and to prepare you and your family to understand the final plan when drafted. The remaining articles consider –

This series was first posted to our website over a period from late-2011 through early-2012; it has occasionally been refreshed/ updated, most recently in March 2023.

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