Estate Planning

Estate planning and SMSFs

SMSFs can be an effective estate planning tool given the control members have over their fund and the flexibility that it offers. However, trustees should also be aware that unless proper plans and mechanisms are put in place, that same flexibility can result in estate planning outcomes that are very different from what a member intended.

When establishing a SMSF, members and their professional advisers should pay special attention to the rules around the payment of death benefits from the fund. This will help ensure the member's fund is properly structured to ensure their death benefit is paid in accordance with their wishes and to the maximum benefit of their intended beneficiaries.

Beneficiary nominations

Where a death benefit is not paid to a member's LPR it will not form part of their estate and will not be subject to the terms of the member's Will. In this case members can control the payment of the death benefits by nominating specific beneficiaries to receive their death benefit.

SMSF estate planning issues

One of the advantages of a SMSF is that the members, as trustees, control the fund. While from an estate planning perspective this can be a real advantage, in certain situations this same control can potentially result in a member's death benefit being paid in a way that is contrary to their wishes and intentions.

Control of a SMSF in event of death

As control of the fund will generally rest with the remaining trustees (or directors of the corporate trustee) of the fund, it will be up to those parties to determine how any benefits will be paid. In general, where members have put in place some form of legally binding nomination, such as a valid binding death benefit nomination, the trustees will have no discretion and must pay out the death benefit in accordance with the nomination.