The SMSF Will
The SMSF Will is a revolutionary concept developed using the Simpler Super Rules created by Ian Glenister, Solicitor, of Glenister & Co Specialist Superannuation Lawyers and Grant Abbott of SMSF Strategies.
The SMSF Will can only be used where the person creating the document is a member of a SMSF that uses the Glenister & Co Superannuation Trust Deed.
The SMSF Will is a document created by the member in concert with their adviser, the Fund's Trustee and literally becomes a Rule of the Fund.
The SMSF Will enables the member to provide a definitive direction to the Trustee as to how their Death Benefits are to be distributed at the time of their death. This can include out of which superannuation interests and in what form including specific assets the death benefits are to be paid.
Additionally, a SMSF Will can direct the Trustee as to who the deceased member's replacement Trustee is to be upon their death.
At the time of the Member's death the Trustee is to review the SMSF Will and distribute according to the Will subject to the superannuation laws and the fund remaining a complying SMSF.
A SMSF Will is not automatically accepted. In accordance with the Trustee's discretion, the Trustee can accept all or part of the member's SMSF Will. This is subject to the availability of the member's Superannuation Interests, the Superannuation Laws and the Rules of the Fund.
Additionally, the Trustee may qualify what terms and conditions of the SMSF Will are to be incorporated into the Rules of the Fund.
How the SMSF Will can be varied may also be noted as part of the terms and conditions of the Rules of the Fund.
The SMSF Will provides a member with the most secure option in terms of their SMSF Estate Planning.
Conditional upon a current Glenister & Co Superannuation deed is utilised the following SMSF Estate Planning strategies and considerations apply:
1. Directions set out in a SMSF Will are not binding on the trustee(s) of the Fund. However the executor(s) of his/her estate will be automatically appointed as a replacement trustee on death (rule 2.9). The executor will have voting rights equivalent to the deceased member's account balance (rule 16.4: a SMSF Strategies corporate trustee must be utilized if a company) and will hold all voting power in respective of meetings addressing the deceased member's death benefits (rule 16.7). Accordingly assuming the executor(s) act in accordance with the deceased member's wishes, the embedded death benefit rules (SMSF Will) should always be followed.
The issues faced in Kratz & Grossman should not be an issue in this case.
2. A SMSF Will facilitates a trustee(s) to stream superannuation interests to separate beneficiaries but not taxable/tax-free benefit components within a single superannuation interest.
3. Segregation is crucial to the effective operation of a SMSF Will as it facilitates the ability to separately deal with individual super interests and assets. Usage of pooled strategies may lead to the inability to direct tax-free benefits to certain beneficiaries (i.e. financial dependants).
4. Binding Death Benefit Nominations do not facilitate the flexibility of directing specific super interests to certain beneficiaries (taxable/tax-free streaming), the transfer of specific assets to beneficiaries or cashing benefits as a lump sum AND establishment of a new income stream to multiple beneficiaries and cease to be binding after 3 years. Are there any additional major disadvantages from utilizing BDBNs?
5. Following Regulation 6.21(2) of SIS, the only way a deceased member's benefits that relate to a Lump Sum Super Interest can be retained in the super environment is to establish a new income stream to a dependant (i.e. spouse, child under 18, financial dependant under 25, child with a disability).
If any of these parties were previously not a member of the SMSF, necessary documentation would need to be prepared to confirm membership and to appoint as a trustee. This option would permit the new member (if a spouse) to commute the income stream in question to a Lump Sum interest.
However Regulation 6.21(2B)(a) of SIS would trigger a cashing event at this point for a child unless the commutation was to commence a new income stream. If this option is not available and the benefits must be cashed out, the beneficiary would need to satisfy the contribution rules to keep these amounts within the super environment and would be limited to the relevant concessional/non-concessional contribution caps.
Please Note:
If no SMSF nominations exist (Death Benefit Nomination or SMSF Will), the trustee will have complete discretion on how death benefits are to be dealt with. My understanding is that it is common for trustees/executors to pay the benefits to the estate and to deal with the assets at this level. This can lead to numerous disadvantages including loss of ability to direct taxable/tax-free components to specific beneficiaries, potential detrimental income tax/CGT consequences and exposing the assets to legal disputes.
Contact Glenister & Co to discuss the benefits of creating a SMSF Will.
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