SMSF trustees can ensure better protection of their retirement savings upon the death of a member by including clauses in the fund’s trust deed designed to facilitate a desired outcome.
Trustees could achieve that through the inclusion of powers in the deed limiting the distribution of benefits upon the death of a member to individuals belonging to the bloodline of the deceased, NowInfinity principal Grant Abbott told the SMSF Trustee Empowerment Day 2015 in Sydney last month.
The strategy is an extension into the SMSF arena of arrangements commonly used in the past.
“Quite often in the past there has been use of what are called bloodline trusts that are trusts only open to your bloodline,” Abbott said.
“These trusts distribute but only to your bloodline. Mind you, the bloodline can be defined widely.
“So it could be your bloodline plus your stepchildren at the time.”
He said the inclusion of bloodline clauses could guarantee the benefits of a deceased member were only passed to bloodline members of the individual who had passed away as well as stipulate any replacement members to the fund.
“To enable bloodline benefits, you need to have that power in the trust deed of the fund and it’s really important to have those specific powers because they always override general powers,” he said.
Bloodline clauses in the deed could even allow death benefits from an SMSF to pass to and be administered by the deceased’s estate, but still ensure they were distributed to the proper family members as long as they were allocated to a bloodline trust where distributions could only be made to individuals included in the bloodline definition, he said.
In addition, those types of clauses could stipulate the passing of death benefits into a bloodline reserve within the SMSF that could only be accessed by individuals belonging to the specified bloodline at a later date, he added.
“If you don’t need to pass your benefits out on death, the bloodline reserve will actually provide protection for your children because you can stipulate that money can only be accessed in the event of incapacity or in the event of their retirement,” he said.
“So at the end of the day, your children will be able to pull that money out and use it for their retirement purposes.
“The strategy cuts out daughters-in-law, sons-in-law [and it] will also cut out their stepchildren and is pretty typical for most large estates, but has never been translocated into the SMSF sphere.”