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Estate Planning & SMSFs

For many of you, your superannuation benefits will form the largest part of your Estate.  With recent changes to the taxation and superannuation laws allowing the passing of tax effective wealth between generations via a Self Managed Super Fund, Estate Planning in a SMSF is now an important and crucial area to be considered by all members and trustees of a SMSF.

WARNING – SMSF Outside a Person’s Will

It may surprise you to know that your Will is completely ineffective when it comes to disposing of your SMSF benefits upon your death.  It is wrong to assume that because you have made provision for the passing of your superannuation benefits in your Will, that this will happen.

As superannuation is highly likely these days to form a substantial part of your individual wealth, it is very important that you understand what happens to your SMSF benifits upon death.

Firstly, your SMSF benefits do NOT automatically go to your Estate to be dispersed according to your Will.  Rather, the remaining trustee(s) of your SMSF will disperse your benefits based on one of the following scenarios:

1. If you have a valid legally binding death benefit nomination in place within your SMSF, and your trust deed allows this, then the remaining trustees must adhere to your wishes stated in this document.  HOWEVER……… a binding death benefit nomination lasts only 3 years at which point the nomination ceases to be binding.  If you have lost mental capacity, say have had Alzheimer’s Disease for the past 4 years, the binding death benefit nomination will have ceased to be binding and therefore control could revert back to the remaining trustees whereby your SMSF benefits may not be paid to your chosen beneficiaries.

2. If you do not have a valid binding death benefit nomination in place, then the trustees can use their discretion to pay any amounts to your dependants (as defined under the SIS Act), or just pay it to your Estate, or any combination of the two.  Again, your trust deed may have some say in this, depending on how it is drafted.

BOTH choices above could have poor consequences if you consider Katz’s case (Katz v Grossman [2005] NSWSC 934).

A brief description of this case was that a couple (father and mother) were trustees of a self managed superannuation fund which held assets in excess of $1,000,000. This couple had two children, a daughter and a son. One of the trustees (the mother) passed away, and the father appointed his daughter to replace his deceased wife as the other trustee of the Fund. When the father passed away, the daughter subsequently appointed her husband in place of her deceased father. The father’s will stated his superannuation benefits were to be divided equally between the son and daughter, however as trustee of the self managed superannuation fund, the daughter paid all of her father’s death benefits to herself, leaving the son nothing. The son fought the decision in court and lost, as the court found that the trustee had to administer the fund in accordance with the SIS Act, but had no duty to do so in an equitable manner.

The outcome in the above case was different to the wishes of the late father. However, had he used more effective estate planning tools such as a non-lapsing binding death benefit nomination, then the payment of his benefits may have then been in accordance with what was stipulated in his will.

A non-lapsing binding death nomination will remain in place until such time as the nomination is amended or revoked.  This way if you lose mental capacity no one can stop your SMSF benefits going exactly where you want them to go.  It is a question of control.

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The information provided on this website, including the material and contents provided in the website publications, are informative in nature only and you should not act specifically on the basis of this information alone. It should not be used as a substitute for legal, business, accounting, tax, financial planning or other professional advice. If expert assistance is required, professional advice should be obtained. Liability limited by a scheme approved under Professional Standards Legislation

Paul Baggetta is the Founder & Principal of Baggetta & Co (ABN 68 786 233 813).

Paul Baggetta has been a Taxation Accountant since 1981, a Financial Planner since 1998, and in 1993 qualified as a Real Estate Licensee, holding a Triennial Certificate (currently not trading) and operated his own Real Estate business for property investment clients for over 5 years as a second business.

Financial planning services are provided by Paul Baggetta as an Authorised Representative (No. 261469) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. Australian Financial Services License No. 223135.


Taxation & Accounting services are provided by Paul Baggetta as a Registered Tax Agent (No.61487008) and is a Member of SMSF Association, FIPA & NTAA.