Five SMSF estate matters you must talk to your client about

This post is an excerpt from the paper 'Five SMSF estate matters you must talk to your client about', this month's free technical paper for members.

ATO data confirms there are over 597,000 of SMSFs in Australia. We see many instances where SMSFs hold the greatest pool of assets for clients. 
Unfortunately we are also seeing many instances where the SMSF has been the forgotten part of the succession planning puzzle, or where there has been little thought on key issues such as succession of control or passing of death benefits.

It has been very easy for clients to complete a standard death benefit nomination (DBN) form to deal with the assets of the SMSF. While that often works for situations where there are happy families and simple scenarios, increasingly the SMSF is becoming the new battleground.

Shifting the mindset of clients from only considering a DBN, to thinking more broadly about their SMSF and their succession planning goals can be a tricky discussion. This needs to be considered as a key cog in the succession planning process, and is best done in conjunction with a review of Wills, powers of attorneys and succession of trust control.

Many clients often baulked at the time and cost involved in considering their SMSF and succession when their mindset is this can be dealt with simply via a DBN. The ability to have the conversation, demonstrate the value in a comprehensive plan, and show how it can minimise future risks, costs and litigation is a key tool for advisers, and one that will stand them in good stead with clients and their successors in the future.

Some of the examples we discuss in this paper are useful for starting the discussion, and make great war stories around what clients should be avoiding. There are an increasing number of cases being litigated around:
  • the validity of DBNs;
  • control of SMSFs after the death of a member; 
  • capacity and powers of attorney; and 
  • exercise of trustee discretion in distributing death benefits. 

The costs associated with these litigated matters easily runs into tens of thousands of dollars, and for those that run to trial in the Supreme Courts, hundreds of thousands of dollars. Putting the dollar cost aside, there is also the time and emotional toll that must be considered and has a significant impact on clients.

The introduction of the transfer balance cap regime in 2017 has also let to different considerations for planning around death benefits and how and when they pass, including strategies on where benefits need to come out of super will pass. 

Making clients aware of these potential issues, especially where they are in higher risk circumstances (such as blended families, or have difficult relationships with interested parties), and implementing an effective strategy to minimise the potential issues, is a great way to give your clients peace of mind, add value for the clients, and in turn strengthen your role as the key trusted adviser.

The paper covers dealing with control of SMSFs, powers of attorney, transfer balance cap strategies, using binding death nominations and recent cases.

Members, you can access the full paper here.

Not a member? Find out more about the benefits membership of The Tax Institute can deliver for your role.

This paper was produced by William Moore and Heather Gray, CTA. 

William is a wills, estates and succession planning lawyer, and provides regular advice to clients around personal and business succession planning (including preparation of complex Wills and powers of attorney), estate administration, estate disputes, and trust advice (including establishment, ongoing control, variations, resettlements and vesting issues). William has more than 10 years' experience, and is a member of the Law Institute of Victoria and the Society of Trust and Estate Practitioners.

Heather is a superannuation law partner at Hall & Wilcox Lawyers. She has been involved in the development and implementation of superannuation policy through her roles as a member (and former Chair) of the Superannuation Committee of the Law Council of Australia and as a member of regulatory consultative committees and of the Board of Taxation Advisory Panel. A frequent speaker at superannuation conferences, she is a Chartered Tax Adviser, a member of the Australian Institute of Superannuation Trustees and the Australian Institute of Company Directors, and holds Honours degrees in Law and in Arts from the University of Melbourne.


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