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Estate Planning

Estate planning has pros for small SMSFs

Low-balance SMSFs may be worthwhile when combined with estate planning benefits unavailable in other super structures, a law firm has said.

Townsends Business & Corporate Lawyers principal Peter Townsend said the $200,000 establishment benchmark figure was subject to the adviser being able to show that the SMSF is in the client’s best interest even if their super balance is less than $200,000.

Townsend noted the estate planning requirements of the client might tip the balance in favour of setting up the SMSF.

“The client’s estate planning requirements might make it in the best interest of the client to put their super into an SMSF, especially where the SMSF’s returns were better than the average Australian Prudential Regulation Authority (APRA) fund,” he said today.

“The client may very well say: ‘We want to make sure that our super death benefits go to the person we want them to go to. Plus any conditions that we want to attach.’

“It may not be acceptable to have a situation where in the APRA fund, you can only nominate one person and no back-ups, or not impose any conditions on the receipt of the death benefits.

“Some APRA funds will only give the death benefit to the estate, which makes it vulnerable to estate creditors.”

Townsend highlighted the ability to specify exactly, in a very tailored way, how the member’s death benefits are dealt with was very often the trump card in terms of deciding whether or not to set up an SMSF.

“But will ASIC (Australian Securities and Investments Commission) accept that the client’s estate planning wishes make the low-balance SMSF in the client’s best interests,” he warned.

“It’s so important to have that certainty of being able to know that you’ve put in place an estate plan including a death benefit nomination, which is exactly what the client wants and is non-lapsing – in APRA funds, the binding death benefit nominations (BDBN) lapse every three years.

“A number of court cases have resulted from lapsed BDBNs where the member didn’t realise their nomination had lapsed, so even with a relatively low balance in an SMSF, it may be very worthwhile to ensure the integrity of your estate plan.”

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