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Separate funds simplify death benefits

death benefits SMSF

Despite an industry trend to add more people to an SMSF, having separate funds may create a simple way to manage death benefits for married couples.

Married couples with blended families may wish to consider creating two separate SMSFs as a way to easily deal with the allocation of death benefits and ensure funds stay within their own family, an SMSF lawyer has advised.

Cooper Grace Ward partner Scott Hay-Bartlem said it was generally accepted married couples were both members of the same SMSF, but separate funds were a valid option when trying to remove parties from a discussion about where death benefits are directed.

“Separate SMSFs are one of my favourite ways of dealing with these issues,” Hay-Bartlem said during a presentation at the recent ASF Audits Technical Seminar 2021.

“I know there are economies [of scale] with a single fund and it’s very romantic to share an SMSF, but do you really need to have your spouse in your SMSF with you?

“I’ve had clients over the years, typically with blended families, where they don’t want the surviving spouse being involved in a death benefit payment decision.

“The classic example is: ‘I want my super in my fund so when I die I can pass control to my family as I want and my partner is not involved.’”

He said under this arrangement both partners would have their own fund and be the sole member and trustee and therefore the sole decision maker while alive and sole director of death benefits after their passing.

“Each partner then has a separate SMSF and is not a trustee, director or member of the other fund and when they die, the super goes in accordance with their plan only,” he said.

He said this also avoids the issue of adult children having to approach a surviving fund member and working through any contentious issues with them.

“I had a client who died with these type of arrangements in place and it made the death benefit planning so much easier,” he said.

“It also allowed his family to make the death benefit for him and her family were not involved, which is what they wanted to keep their finances completely separate.”

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