SMSF Estate Planning
The Glenister & Co Simpler Super trust deed is different from pre-Simpler Super trust deeds when it comes to SMSF Estate Planning.
The major strategy change is the ability to create an SMSF Will using the rules of the fund and importantly, being able to distribute specific Superannuation Interests to different beneficiaries. For example, a Superannuation Interest with a high tax free component may be distributed to a non-dependent with a Superannuation Interest with a high taxable component being paid to a dependent.
There is also built in security and control with the deceased member's executor being automatically appointed as a Replacement Trustee (or Replacement Director if our Simpler Super SMSF Corporate Trustee is being used). In addition the Replacement Trustee is the only person who can vote on what is to happen to the deceased member's Superannuation Interests.
With the Glenister & Co Simpler Super trust deed provides the availability of four possible Member Death Benefit distribution methods when making a Member Estate Plan under the Simpler Super Trust Deed:
Method 1
No Member Estate Plan.
The Trustee has the discretion to determine where a deceased Member's Death Benefits are to be distributed. In this instance distribution of the deceased Member's Death Benefits are totally at the unfettered discretion of the Trustee. This method is usually as a result of a lack of a Member Estate Planning.
Method 2
Non-Binding Death Benefit Nomination.
The Member provides the Trustee with a nomination as to how some or all of their Death Benefits may be distributed.
Ultimately, the Trustee retains control of the distribution of the Death Benefits. This method may apply where a Member's Death Benefits are to be distributed to a single beneficiary, for example a spouse, who is to remain as the major Trustee of the Fund.
Method 3
Binding Death Benefit Nomination.
A Binding Death Benefit Nomination is a popular in retail and industry based superannuation funds. These allow a Member to direct the Trustee of the Fund in what proportion their Superannuation Benefits are to be paid in the event of their death.
Upon a Member's death the Trustee must abide by the direction provided in the Member's Binding Death Benefit Nomination only if the Member's Death Benefit Nomination Member's is valid and current.
There are specific requirements to be found in the Superannuation Laws for a Member Death Benefit Nomination to be valid. They need to be in writing and witnessed by two independent adult witnesses. They need to be renewed and reviewed every three years.
The advantage of a Binding Death Benefit Nomination is that it provides some certainty as to how the Member's Death benefits are to be paid.
The Member cannot however provide in the Binding Death Benefit Nomination for a Superannuation Income Stream to be paid to one tax Dependent with a Superannuation Lump Sum to another.
Additionally, the Binding Death Benefit Nomination needs to be renewed every three years. It has its place in a complying SMSF but Binding Death Benefit Nominations have disadvantages.
Method 4
Death Benefit Rule.
A Death Benefit Rule created by the Member, in concert with the Trustee, literally becomes a Rule of the Fund in some respects a living SMSF Will.
A Death Benefit Rule allows the Member to direct the Trustee as to how their Death Benefits are to be distributed and in what form. Additionally, a Death Benefit Rule can direct the Trustee as to who the deceased Member's Replacement Trustee is to be.
Upon the Member's death the Trustee is to review the Death Benefit Rule. In accordance with the Trustee's discretion, the Trustee can accept all or part of the Member's Death Benefit Rule. This is subject to the availability of the Member's Superannuation Interests, the Superannuation Laws and the Rules of the Fund.
The Trustee may qualify what terms and conditions of the Member's Estate Plan are to be incorporated into the Rules of the Fund. How Death Benefit Rules are to be varied may also be noted as part of the terms and conditions of the Rules of the Fund. Method 4 provides a Member with the most secure option in terms of their Member Estate Planning.
The Corporate Trustee is a mirror of the Glenister & Co Simpler Super deed. The voting rights are based on the following rule from the company's memorandum and articles of association:
- For each decision by the Board of the Corporate Trustee, the Director or Replacement Director is to hold that number of votes equal to $1 per vote in respect of their total fund Member Superannuation Interest Entitlements as last recorded by the Trustee.
- Any Additional Director, acting on behalf of the sole Member of the Fund is to be provided with the number of votes as prescribed by the sole Member Director.
- The Board may at any Director's Meeting, in accordance with the proportional voting rule, decide upon the appropriate voting arrangements to apply for that Meeting.
The SMSF Will
One of the unique features of the Glenister & Co Simpler Super trust deed is the ability to create a SMSF Will. This has been created due to the inefficiency of a binding nomination in a SMSF.
Although they work well in public offer superannuation funds they cannot dispose of separate Superannuation Interests, cannot direct the Trustee to pay a lump sum or Income Stream and lapse after a three year period.
The SMSF Will under the Simpler Super trust deed allows specific rules to be created by the Trustee of a complying SMSF disposing of their Superannuation Interests in a particular way. The methodology for building the rules and for them to be accepted by the Trustee is a simple exercise laid out in the Glenister & Co Simpler Super Trust Deed.
For further information in respect of the SMSF Will go to the article on our Website.
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