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Self Managed Super Funds

SMSF Assets – personal wills are not enough

 

Many SMSF Trustees and members are under the misconception that, as long as they have a personal will, their superannuation funds will upon their death pass onto the beneficiaries of their will in accordance with their wishes.

 

Unfortunately, as many recent court decisions in this area attest to, this is not the case.

 

Superannuation funds are not considered part of your will, and therefore cannot and will not be dispersed in accordance with your wishes in your will.

 

Alarmingly, this misconception is not just shared by many SMSF Trustees and members. A great many number of accountants, financial planners and some lawyers also hold this misconception.

 

In the event that a member of a Super Fund should die, it is the Trustee that determines who the funds will be paid to, and in fact, Trustees can pay those funds directly to themselves regardless of what your personal will may have nominated or intended.

 

In the recent court case of Katz v Grossman NSWSC 934, the scenario was that a member of a super fund had a son and daughter. The son was not a member of the fund, but the daughter was and was also the Trustee of the family SMSF. The fathers’ personal Will left instructions that the $1M superannuation benefits be dispersed equally between his son and daughter. Instead the daughter, as the remaining Trustee of the Super Fund paid the entire death benefits to herself.

 

When challenged in the Supreme Court of NSW, the court held that she was entitled to take this action under the Funds’ Trust Deed and the fathers’ will was deemed ineffective.

 

How SMSF death benefits are dispersed

 

Ultimately, upon your death, your Super Fund benefits are paid to your dependants by the Trustee of the fund.

And as Trustee of the fund, there are three ways the Trustee will determine who your superannuation benefits will be paid to:

1. A Binding Nomination – this is your strongest protection to ensure that your superannuation benefits are dispersed in accordance with your wishes.

 

This is a nomination which is provided by you to the Trustee of the Fund and which clearly indicates who the beneficiaries of your Super Fund benefits are, what portion will each beneficiary receive and in what form it will be paid, ie lump sum or as an income stream.

 

Once you provide the Trustee with a Binding Nomination form, the Trustee is compelled to disperse your superannuation funds in accordance with your wishes as stated on the Binding Nomination. This Binding Nomination does not have an expiry date, and will stay valid until you change it and provide an updated Binding Nomination to the Trustee.

 

2. A Non-Binding Nomination – this nomination form is also provided by you to the Trustee, and also includes the details of how you would like your superannuation benefits to be dispersed upon your death.

 

However, although the Trustee is obliged to consider your wishes and the people you have nominated, ultimately it will be the Trustee’s choice to decide to whom and how your benefits will be dispersed. Ultimate discretion rests with the Trustee, the case of Katz v Grossman NSWSC 934 being case in point.

 

3. No nomination – this is where a member of a Super Fund has made no nomination for the dispersion of superannuation benefits upon death, and therefore has no idea as to whom you would like your beneficiaries to be.

 

In this case, the Trustee has the right to use his discretion to disperse your superannuation benefits, and does not have to take into account your wishes in your personal Will.

 

Finally, it is important to note that not all Self Managed Super Funds give members the option to provide the Trustee with a Binding Nomination. Therefore it is important that you always seek the services of well experienced professional when initially setting up a Self Managed Super Fund to ensure that it is set up to meet your expectations, and that the Trust Deed allows your Super Fund the flexibility to meet those expectations.

 

Paul Baggetta, Founding Partner of Baggetta & Co, has been a Taxation Accountant for over 32 years, a qualified Financial Planner since 1998 and in 1983 qualified as a Real Estate Licensee and holder of a Triennial Certificate.

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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.

Paul Baggetta is the Founder & Principal of Baggetta & Co. 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.