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Estate planning benefits can make a low-balance SMSF worthwhile

Peter Townsend  |  12 Sep 2017Text size  Decrease  Increase  |  
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Some APRA funds will only give the death benefit to the estate, which makes it vulnerable to estate creditors.


As estate planning and SMSF specialists, would we advise a client to set up a self-managed super fund (SMSF) in order to achieve a better estate planning outcome? Even if their account balance was less than $200K?

"It's so important to have that certainty of being able to know that you've put in place an estate plan including a death benefit nomination which is exactly what the client wants and is non-lapsing. In APRA funds, the BDBNs lapse every three years," says Peter Townsend, principal, Townsends Business & Corporate Lawyers.

"You don't have to worry about it anymore and the client has peace of mind that the death benefits will go where they're meant to go ultimately. A number of court cases have resulted from lapsed death benefit nominations where the member didn't realise their nomination had lapsed.

"Even with a relatively low balance in an SMSF it may be very worthwhile to ensure the integrity of your estate plan."

For example, a member could switch to an SMSF from their APRA fund--then arrange his own life insurance policy with greater choice of insurer, possibly more tax-effective contributions, and much greater flexibility as to where the proceeds of the policy go via his binding death benefit nomination.

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Best interest and that $200,000 number

The $200K figure is subject to the adviser being able to show that the SMSF is in the client's best interest even if the amount is less than $200,000. The estate planning requirements of the client might tip the balance in favour of setting up the SMSF.

The client's estate planning requirements might make it in the best interest of the client to put their super into an SMSF, especially where the SMSF's returns were better than the average APRA fund.

The client may very well say: "We want to make sure that our super death benefits go to the person we want them to go to … Plus any conditions that we want to attach."

It may not be acceptable to have a situation where in the APRA fund you can only nominate one person and no back-ups or not impose any conditions on the receipt of the death benefits. Some APRA funds will only give the death benefit to the estate, which makes it vulnerable to estate creditors.

"The ability to specify exactly, in a very tailored way, how the member's death benefits are dealt with is very often the trump card in terms of deciding whether or not to set up an SMSF," says Townsend.

"But will ASIC accept that the client's estate planning wishes make the low balance SMSF in the client's best interests?"

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Peter Townsend is the principal of Townsends Business & Corporate Lawyers. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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