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Estate Planning

Dual funds can prevent estate tensions

super estate planning

Dual super funds can be used to separate assets in estate planning for a blended family and to ensure benefits go where they are intended.

SMSF trustees who have remarried and may be facing estate planning issues between their new partner and their adult children should consider the use of two super funds to separate the benefits that are earmarked for the different parties, an SMSF adviser has suggested.

Cooper Partners financial services director and head of SMSF and succession Jemma Sanderson said a key decision SMSF trustees needed to consider was where they wanted their money to go at the time of death and to settle that issue before they were unable to act upon it.

“Estate planning in the lead-up to someone’s passing is important. The question of who do they want to get their money is just the first question and then we can put in place the rest of the pieces,” Sanderson said.

She said SMSF trustees often had strong views on the actions they wanted to achieve via their funds, but these had to align with where they wanted any benefits to go and in situations where someone could contest their estate, such as a blended family, care was needed in implementing those actions.

Addressing attendees at The Tax Institute’s Tax Summit in Sydney, she said her firm had developed a strategy of using two superannuation funds – one set up for the benefit of a member’s spouse and one for the benefit of their children.

“The spouse and their partner are in the first fund and are running it and it can have a reversionary pension or be in accumulation phase, but it’s set up for their benefit only,” she noted.

“The kids’ fund will have the children in there with the parent running it – subject to the four-member limit – so when the parent dies, those children are already in there making decisions.

“A binding death benefit nomination may pay the benefit to the kids from that side of things and the kids don’t have to interact with the spouse, and that can be a game changer.”

Separate funds would also allow a trustee to manage tax and business issues that differed between the married partners and the adult children, she said.

“The kids’ fund can have the accounts with the higher tax-free components in them if you want to manage that aspect of things, and the other benefit is where the kids are involved in the family business and one of the assets is the business property,” she said.

“A trustee might not want any interaction between their new spouse and the first children because the business is being run separately by them and having the property sitting in the second fund can mitigate issues there as well.”

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