SMSF planning for advisers

This article aims to give some general guidance to advisers as to what aspects of succession planning may impact their clients and outlines some of the practical tools and documents that may assist advisers.

Advisers are frequently asked to assist with SMSF succession planning assignments for their clients. More often than not, they will be approached with a single query, such as ‘I’d like to update Mr X’s pensions to make them reversionary’, or ‘Mrs Y needs a BDBN drafted’. However, in order to appropriately plan for Mr X's and Mrs Y’s SMSF succession upon their death or loss of capacity, there several things that must be considered.

Broader considerations

As a first port of call, the SMSF’s deed will need to allow for other supporting documentation to be put into place. The SMSF members should then consider having a sole purpose corporate trustee appointed, with mechanisms in the company constitution that allow for the smooth succession of directors.

Thereafter, things such as wills, enduring powers of attorney, pension documentation and BDBNs should all be reviewed and considered. They should first be checked to ensure that they are consistent with one another and are in accordance with their clients’ goals.

For example, a BDBN may state that a member’s superannuation benefits are to be paid to their legal personal representative. However, that member’s will may not take their superannuation benefits into account.

Comprehensive planning

When an adviser’s client asks them to start a pension or BDBN, the adviser should be thinking about a range of other aspects.

The reversionary nomination is now an important decision and has an impact on clients’ estate planning – it affects every pension.

Advisers such as accountants, financial planners and lawyers should hopefully be able to formulate strategies that can be applied across all of their clients. Such a strategy should not necessarily restrict clients’ succession planning choices, but rather ensure that:

• the adviser is demonstrating to the client that they have the client’s best interests at heart by thinking outside the square, and

• the client will have a ‘rock solid’ SMSF succession-planning position at the completion of the engagement.

Checklist for advisers

The following checklist¹ is a general guide to assist advisers with a range of SMSF succession queries that their clients may have.

• Has the SMSF member considered how they wish their superannuation benefits to be paid upon their death or loss of capacity? Have the tax consequences of this also been considered?

• Does the SMSF have a corporate trustee? (There are a number of succession-planning advantages with having a corporate trustee).

• How is the shareholding of the SMSF’s corporate trustee structured and who will take control of the shares of the corporate trustee on a member’s death or loss of capacity? (This aspect can affect an SMSF member’s succession planning).

• Does the SMSF member have any Enduring Power of Attorney (EPoA) in place to deal with their loss of capacity? An EPoA allows a person to represent a member on loss of capacity in an SMSF.

• Does the SMSF member have a pension? If so, do they have a reversionary pension or BDBN in place that provides for an automatic reversion? Are these consistent with the SMSF deed and with each other?

• Does the SMSF member have a current will? Does it adequately take into account how they wish their superannuation benefits to be paid (if applicable)? A will can also be a useful fallback if a BDBN fails.

• Does the SMSF member require a ‘hard wired deed’ or death benefit rule in order to achieve their desired outcome? These seek to enshrine the client’s estate planning directions in an SMSF deed.

• Depending on the client's requirements, do I have access to other professionals that can draft the above documentation?

The first question in the checklist is arguably the most important. Once a client has decided where they wish their death benefits to be paid, then consideration can be given to the other questions in the table.

Conclusion

Advisers should urgently review all clients with pensions to see if they are exposed by not having an auto-reversionary pension. We encourage advisers to think more broadly about a client’s SMSF succession planning.

Typically, a conversion to an auto-reversionary pension will not address all of that client’s needs. By utilising the material outlined above advisers should be able to design a comprehensive review that will benefit all their clients’ interests.

Endnotes

1. These questions are based on the step-by-step process set out in The Complete Guide to SMSFs and Planning for Loss of Capacity and Death (a DBA Lawyers publication).