So you’ve decided to look after your future and gotten yourself a self-managed super fund (SMSF). You’ve even taken the step of investing in a property, probably with an SMSF loan. But have you considered what will happen to it if after you’re gone?
Corporate trustees
Each time an individual trustee joins or leaves your SMSF, you have to change the ownership of the assets that are held by your fund. Setting up a company to be your trustee saves you the hassle of updating all the documents related to your ownership.
You must have at least two individual trustees for a sole member SMSF, whereas a corporate trustee can have one person as the sole member and sole director.
Not only this, if for whatever reason your fund is fined, the fine can only be applied once to your company, as opposed to every one of your individual trustees being fined.
And as companies can’t ‘die’, your fund will be protected if your trustee(s) pass away.
The low cost of establishing a company to be your trustee far outweigh the benefits.
Binding death benefit nomination
A binding death benefit nomination (BDBN) is when you write a notice saying where your death benefit will go. Make sure it’s quite specific to confirm what you want is carried out.
This is an added control to your corporate trustee to make sure no ugly family disputes happen. Not only will it save unsightly arguments, but you’ll also save plenty on legal fees.
For instance, this was evident in Katz v Grossman [2005] NSWSC 934, where the son sued his sister after she paid the death benefit from their deceased father’s SMSF to herself and her husband. The issue was that their father had only made a non-binding nomination for his fund to be split between his two children, which meant what the sister did was legal.
But a BDBN is not a guarantee that your succession is going to follow your wishes. To be absolutely sure, create a corporate trustee with the contribution of the shareholder(s) to the decision-making very clear.
It’s all very well saying that you should protect your SMSF for your next of kin, but unless you have something in your SMSF to protect, it doesn’t really help.
Loans can be taken out with your SMSF to buy investment properties. And because of this, your SMSF can acquire assets worth more than the available funds in your SMSF. Just be sure to talk to your financial adviser on SMSF loans to make sure you know what you’re doing.
