Securing Your Legacy: SMSF, Wills & Estate Planning

When it comes to estate planning, many people assume that their will covers all of their assets. However, your Self-Managed Super Fund (SMSF) is a significant asset that sits outside of your will. Understanding how to effectively plan for the distribution of your SMSF benefits is crucial to ensuring your legacy is protected and your loved ones are provided for.

 

Why Your Will Doesn’t Automatically Cover Your SMSF

Your SMSF is a trust, and your superannuation benefits are held in trust for you. This means that upon your death, the trustee of your SMSF (which is usually you and other members) is responsible for distributing your benefits. Your will only deals with assets that you personally own, not assets held in a trust.

 

The Power of a Binding Death Benefit Nomination (BDBN)

A Binding Death Benefit Nomination (BDBN) is a legally binding document that directs the trustee of your SMSF to pay your death benefits to your nominated beneficiaries. A valid BDBN is the most effective way to ensure that your superannuation benefits are distributed according to your wishes.

There are two main types of BDBNs:

  • Lapsing BDBNs: These typically expire after three years and need to be renewed to remain valid.
  • Non-Lapsing BDBNs: These do not expire, providing greater certainty for your estate plan. The ability to make a non-lapsing BDBN will depend on the terms of your SMSF’s trust deed.

 

Who Can You Nominate as a Beneficiary?

You can nominate one or more of your “dependants” to receive your death benefits. A dependant is defined under superannuation law as:

  • Your spouse or de facto partner
  • Your children of any age
  • A person with whom you have an interdependency relationship
  • A person who is financially dependent on you

You can also nominate your Legal Personal Representative (the executor of your will) to receive your death benefits, which will then be distributed according to the terms of your will.

 

Reversionary Pensions: A Seamless Transition

Another estate planning tool for your SMSF is a reversionary pension. This is a pension that automatically continues to be paid to your nominated beneficiary (usually your spouse) upon your death. This can provide a seamless transition of income and can also have tax advantages.

 

The Importance of a Coordinated Estate Plan

A comprehensive estate plan will ensure that your will, BDBN, and any reversionary pension nominations work together to achieve your desired outcomes. It’s essential to regularly review your estate plan, especially after significant life events such as marriage, divorce, or the birth of a child.

 

Seek Expert Advice for Your SMSF Estate Plan

SMSF estate planning can be complex, with significant legal and tax implications. Seeking advice from a specialist SMSF advisor and an estate planning lawyer is crucial to ensure that your wishes are carried out and your beneficiaries are protected.

By taking the time to create a comprehensive and well-documented estate plan for your SMSF, you can have peace of mind knowing that your hard-earned retirement savings will be passed on to your loved ones in the most effective and tax-efficient way. Here are the next three articles for your review.