30/10/2008

A draft Self Managed Superannuation Funds Determination SMSFD 2008/D1 from the ATO confirms that cumbersome formalities that apply to binding death benefit nominations prepared by members of public offer funds do not apply to those prepared by the members of SMSFs including:

- 3 yearly expiry; and

- formal Will like attestation requirements.

This means that members of SMSFs now have an unfetterred opportunity to direct how their superannuation is to be distributed when they die.  But can’t this direction be made in a member’s Will?  Not really.  Unless a binding death benefit nomination in accordance with fund rules is made, the trustee of an SMSF is at liberty to pay death benefits to any of the member’s dependants or to the member’s deceased estate despite the member’s directions in an ordinary Will.  Only if the trustee of the SMSF pays the death benefits to the deceased estate will the superannuation become property of the deceased estate that can be given by Will.

So, for many people who hold a considerable proportion of their wealth in superannuation, an “SMSF Will” is required in addition to an ordinary Will if they wish to direct how their wealth is passed on.  Value tied up in a family trust is another example of wealth that an ordinary Will can be ineffective to deal with.  For most affluent people just an ordinary Will falls well short of adequate estate planning to provide for their family and tidy up their affairs.

Thus if an SMSF member wishes to direct where his or her superannuation is to go, in the same manner that they direct where their own property goes in their Will, they need to prepare an “SMSF Will” and, following on from SMSFD 2008/D1, they can do so with an SMSF Will in the form of an enduring SMSF binding death benefit nomination.

How benefits can be left in an SMSF Will is comparable to how property can be left in an ordinary Will but the power to direct how benefits/property are to be left is not quite so extensive.  Notably death benefits from superannuation can only be paid to a limited range of dependants whereas, subject to family provision constraints, property can be left to any person or charity under an ordinary Will.  Ordinarily independent adult children and grandchildren are not dependants; but they can be under the formulation of dependent which is:

- a spouse, including a de facto spouse, of the member;

- a child of the member under the age of eighteen;

- any other person who in the opinion of the Trustee/s is at the relevant date wholly or partially financially dependent on the member; and

- a person in an interdependency relationship with the member.

Limits also apply on how death benefits can be paid from a superannuation fund.  Benefits can only be paid as lump sums or pensions and pensions cannot be continued or paid to independent children over the age of 25 and 18 respectively.

We foresee that the Ordinary Will/ SMSF Will combination will become the popular option very soon.

Please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 for more information.