Multiple layers of SMSF estate planning protection, such as a binding death benefit nomination (BDBN) coupled with a testamentary trust, are a necessity given the increasing number of legal challenges regarding death benefits, a sector strategist has said.
Abbott and Mourly partner Grant Abbott suggested the process must begin with a BDBN to ensure a person’s superannuation benefits do not pass to a deceased estate when an SMSF member dies.
“Over 50 per cent of estates now are effectively litigated, depending on the state, and the chances of success are huge – I think it’s 76 per cent in Victoria, around about the same in Queensland and in New South Wales 86 per cent,” Abbott told attendees of a webinar he hosted today.
“So our goal really should be protective estate planning.”
Further, he pointed out preventing superannuation benefits from forming part of a deceased estate will also be of value to the death benefit recipients from an efficiency perspective.
“There is a timing issue [with legal estates]. If [the super] goes into a legal estate when someone dies, you’ve got to wait for probate which, at best, can take three weeks or three months,” he noted.
“Then the superannuation has to be paid over there and then be distributed. Now in many states the executor will be extremely reluctant to pay out of the estate to any beneficiaries if there is a potential family provision claim that may not come out for 12 months after death.”
According to Abbott, the increase in the number of family provision claims is in turn giving merit to implementing the additional layer of estate planning protection in the form of an SMSF testamentary trust.
This means the SMSF trustee will not pay the death benefit directly to the recipient, but will instead remit the amount into a testamentary trust, protecting it from any legal claims against the beneficiaries.
The death benefits will then be paid via trust distributions.
