Three client strategies vital for SMSFs

Advisers need to discuss three crucial strategies that are required for every SMSF client as the current number of funds with all three in place is low, an SMSF strategist has said.

“There are three strategies you must be looking at for every one of your SMSF clients and I stress the importance of must,” SMSF Design founder Tracey Besters told the Super Reforms Masterclass held in Sydney recently.

“But in all of my investigations and talking to advisers and trustees, less than 3 per cent of SMSFs have these three strategies in place: control, incapacity and estate planning.”
Besters said the strategy to start with was control of fund.

“There’s no point building up all these wonderful assets and wonderful planning in an SMSF if we don’t have the control mechanism sorted, and by control of fund I mean what is going to happen to the decision-making process if one or more members can’t make a decision from an incapacitation point of view,” she said.

“We know that under section 17A [of the Superannuation Industry (Supervision) Act), if we have an incapacity event, we can only have a replacement trustee who’s our legal personal representative.

“So control of fund is about finding out who the members want to control the fund if they cannot and putting in place an enduring power of attorney. It’s a simple strategy but an absolute must.”

The second strategy considers the members’ plans for incapacity, she said.

“If we’ve got the control right, if we do that first strategy, but what do the members actually want the SMSF to provide for them in the event that they are incapacitated?” she said.

“For over 65 year olds we have the ultimate condition of release in terms of cashing [assets] out, but for under 65 year olds, what about income protection insurance or paying out a temporary income stream in order to help support income?

“So incapacity is really crucial in terms of a strategy as well.”

The final strategy requiring attention is estate planning, she said.

“Estate planning is not just filling out a binding death benefit nomination form, but takes into consideration all issues, particularly what we’re going to do for the spouse and what are we going to do for the children around the $1.6 million balance transfer cap,” she noted.

“At what point are we going to need an exit strategy for property coming out of the super fund, for example? So estate planning is crucial.

“They’re not difficult strategies and yes, you will need legal support for the documentation, but start with asking your clients about control of fund, and it’s quite good revenue generation if you focus on these three because they’re needed for every single SMSF.”

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