Creating a super legacy

As the average balance of self-managed super funds edges ever closer to $1 million, the need for a comprehensive succession or estate plan for your SMSF becomes absolutely critical. We have identified estate planning as the number one thing where trustees of SMSF are being let down.

There has also been an increase in publicity around messy and expensive court cases involving SMSFs – most of which could have been avoided through relatively simple, but effective planning.

Most people have a personal Will to deal with their assets in the event of their death, however their personal Will does not and cannot give direction over the assets contained in an SMSF.  In addition, a Will doesn’t assist in situations when an individual loses capacity (either physically or mentally).

When people think about death and superannuation, binding death benefit nominations (BDBNs) are generally the first item that comes to mind.  Although BDBNs can be useful in an SMSF, they are only one small piece of the puzzle.

A comprehensive approach to an estate plan that includes an SMSF would include the following components:

  1. Personal Wills
  2. Enduring Powers of Attorney
  3. Quality and up to date SMSF trust deed
  4. Corporate trustee for your SMSF
  5. Auto-reversionary pensions
  6. Non-lapsing binding death benefit nominations

Just as important as the documents themselves is ensuring that they all work together to ensure the legacy desired can be enacted with minimal fuss or conflict.  To put it another way, the estate planning for an SMSF cannot be completed in isolation from the overall estate plan for the individual.

Taking things to the next level – anti-detriment strategies

Estate planning discussions also provide an opportunity to identify strategies that can significantly reduce (or eliminate) taxed paid by the SMSF member’s beneficiaries, or even create a large tax asset within the fund which can be passed onto future generations in the form of a significant carried forward tax deduction.

Imagine the positive impact if your adult children (or grandchildren) could inherit your SMSF and go many years or even decades and legitimately pay no tax on their super contributions or earnings?

The following short (4 min) video from SMSF guru Grant Abbott explains how the strategy works in more detail:

This strategy is called an ‘anti-detriment’ strategy and although it has been around for years and is sanctioned by the ATO very few accountants or advisers have the requisite knowledge to advise clients on the strategy, or more importantly the systems available to implement the strategy in a compliant fashion.

Because Superfund Partners is a specialist SMSF business, we’ve been working hard over the years to develop the required level of technical competence, and have started to utilise this strategy with a select number of our clients.

This strategy is not for everyone.  We would only ever discuss this strategy as a possibility with people who satisfy the following criteria:

  • You have a family, typically adult children who are financial astute and who would understand the valuable financial gift they would be receiving (i.e. an SMSF with a sizable tax deduction that would carry forward)
  • A total SMSF balance that is above average in size.  The average SMSF balance is $929,000 (June 2012 statistics)
  • The dollar value benefit in terms of tax savings you can pass on is significant
  • You are willing to put in place a comprehensive estate plan in place if you haven’t already done so
  • You have the ability to weigh up the cost versus the benefit of the strategy to determine whether it is appropriate for your family
  • You are willing to be educated on the mechanics of how the strategy works, as well ensure your family understands enough to be able to fully utilise the strategy when you pass away

As you can see the not many people fit the criteria for an anti-detriment strategy, however the opportunity it presents in the right hands is just too powerful to ignore.

Being able to ‘pass the torch’ of a family SMSF that contains tax deductions worth hundreds of thousands (or millions) of dollars to the next generation is a fantastic strategy for those wishing to create a valuable enduring and positive financial legacy for their family.

If you believe you, or more accurately you and your family, fit the above criteria for an anti-detriment strategy, please contact Chloe Ward:

Chloe Ward

SMSF Manager

chloe.ward@superfundpartners.com.au 

Phone: 1300 889 282

Director at Superfund Partners. I love working in the SMSF space. Self-managed super funds are more than just a savings vehicle - they enable people to truly take control of their financial situation which is key to achieving happiness. Leading the Superfund Partners team is a privilege - they are a great crew and they always put others first.