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SMSF Succession Diagnostic Service

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For many Australians, SMSF investments are a key component of their retirement savings and wealth creation strategies. For example, the ATO confirmed there were more than 600,000 SMSFs with an average value of more than $1.27 million for the quarter ended 30 September 2019.

Unfortunately, many do not plan ahead for what happens upon a member’s loss of capacity or death especially with regards to their superannuation. Indeed, a majority of the more than 1.1 million SMSF members are understood to have outdated, inappropriate or no SMSF succession plans in place. In many cases, this lack of planning is likely to result in the wrong person(s) obtaining control of the fund and receiving the deceased person’s superannuation entitlements. Moreover, considerable uncertainty and unnecessary legal costs are likely to arise where succession arrangements have not be made. Appropriate planning can provide far greater certainty and minimises risk.

DBA Lawyers provides a personalised SMSF Succession Diagnostic Service to assist clients with their SMSF succession plans. This service helps ensure their objectives are achieved with as much certainty as possible and minimises future risk of legal challenge. This service ideally suits clients:

  • Starting their succession planning journey who need assistance in relation to implementing a clear plan ahead with a strong legal foundation.
  • With well-developed goals and objectives for their SMSF that require specific technical or legal input on their succession plans.
  • Who would like a critical ‘legal’ review of existing estate and succession planning documents to identify any potential weaknesses and enhancements to ensure their goals will be met.

What is succession planning?

Broadly SMSF succession planning aims to deliver the following outcomes:

  • that the right people receive the intended proportion of SMSF money and assets at the right time; and
  • that the right people have control of the SMSF at the right time (eg, on loss of capacity or death) to ensure that benefits are paid as intended.

An optimal SMSF succession plan should provide for these outcomes in a timely fashion, with minimal uncertainty and in a tax efficient manner.

Naturally, these are only general objectives, and each client may have additional more specific goals. Common goals include retaining the maximum amount in the superannuation environment (eg, making a pension revert to a surviving spouse) and retaining specific assets in the family blood line (eg, where superannuation is paid to the deceased member’s executors and managed in a testamentary trust for the deceased’s spouse and/or children).

Typical issues covered by our SMSF Succession Diagnostic Service

DBA Lawyers gains a detailed understanding of your individual circumstances and goals. We then provide you feedback on the key options and strategies available to implement your goals. To help illustrate the value of this service, some recent assignments involved:

  • Identifying and rectifying deficencies in the fund’s document trail that could provide for inappropriate succession planning outcomes and/or avenues for costly legal challenges by disgruntled beneficiaries.
  • Advising and resolving conflicts between binding death benefit nominations (‘BDBNs’), pension documents and estate planning documents to ensure all suucession planning documents were consistent and based on a strong legal foundation.
  • Identifying and updating BDBNs and pension nomination documents that do not take into account the $1.6 million (as indexed) transfer balance cap limit that has applied to pensions from 1 July 2017. Many clients still have documents that were implemented prior to mid-2017 that do not take into account the $1.6 million cap.
  • Helping clients understand the advantages and disadvantages of reversionary pensions and implementing appropriate documents to achieve an automatically reversionary pension and, in some cases, making a pension non-reversionary to provide a better outcome (eg, in case of a market downturn).
  • Addressing future conflicts that can arise where it is expected that a surviving spouse who is intended to receive a superannuation death benefit payment in their personal capacity will also act as the executor of the deceased member’s will. Unless appropriately documented, this common factual situation gives rise to considerable legal risk (as many surviving spouses can be placed in a position of severe conflict given their multiple roles).
  • Advising clients in relation to how to achieve a legally effective and timely withdrawal of benefits (eg, where a member is over age 60) based on sound legal principles (see here for further information) and preparing appropriate documents that can be relied on.
  • Providing strategic advice on how to address succession planning issues associated with legacy pensions (eg, complying lifetime pension and market linked pensions), including how to ensure there are no adverse outcomes under the transfer balance cap regime and how to manage reserves.

General considerations in succession planning

Naturally, while there are many key strategies that arise in the course of each client’s succession planning assignment, there is no ‘one size fits all’ solution. Each suucession plan should be tailored to suit the client’s circumstances and goals. For example, a sound SMSF succession plan should ideally consider matters such as the following:

  • Determine the person(s) or corporate entity who will occupy the office of trustee upon loss of capacity or death (we strongly recommend a sole purpose corporate trustee — click here for more information on the advantages of a DBA Lawyers company).
  • In relation to a corporate trustee, determine who the directors of the SMSF trustee company will be (ie, who will have control of the company) upon loss of capacity or death.
  • Ensure the SMSF can continue to meet the definition of an SMSF under s 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’) with respect to future developments such as the loss of capacity or death of members, or minor members reaching age 18.
  • Determine what each member’s wishes or binding instructions are for their superannuation benefits.
  • Determine to what extent each member’s wishes or binding instructions should be ‘bedded down’ through the use of an automatically reversionary pension, BDBN or a specially tailored deed.
  • Determine the tax profile of anticipated benefits payments (eg, where there is no surviving spouse and benefits comprising a taxable component are to be paid to non-tax dependants).
  • Ensure the SMSF succession plan is consistent with the person’s will, power of attorney and other estate and succession plans.

DBA requirements and fee information

Our SMSF Succession Diagnostic Service is a consulting service where the scope our engagement generally involves:

  • Reviewing relevant background facts and source documents.
  • Undertaking required investigation or research to confirm any particular issues and matters that require further consideration.
  • Providing initial oral feedback in a video conference (eg, Zoom) or phone call for up to 1.5 hours.

Our fees for this service typically start from $2,000 + GST. However, due to the variable nature of this kind of assignment, we will confirm our fee estimate once we have received initial instructions regarding the scope of the assignment and reviewed the range and complexity of documents we need to review and provide feedback on.

Naturally, we can also be engaged on the basis of our usual fee rates to provide consulting advice without a formal brief. These rates range between $300 to $640 + GST per hour depending on the lawyer’s experience and qualifications.

Please contact one of our senior lawyers if you are interested in our SMSF Succession Diagnostic Service.

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

By William Fettes ([email protected]), Senior Associate and Daniel Butler ([email protected]), Director, DBA Lawyers

24 April 2020

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