When it comes to estate planning, superannuation investors often neglect it. It has become a growing concern, and when the inevitable takes place, many individuals will have failed to put the right estate planning in place. To avoid such mishaps from taking, conducting the SMSF estate planning is highly essential. It’s because SMSF or Self-Managed Super Funds will let you have full control of the super even after your demise.
An excellent Self-Managed Super Funds estate planning will help in maximizing all the benefits for your family members. Proper estate planning will also help you to distribute the funds the way you want. This is something that you will not receive when you do not self-manage the super funds.
Is a will-written not enough?
In simple words, no it’s not. Many individuals out there don’t know, what will happen to their super funds, once they die. But superannuation can help in representing a massive portion of your funds. Rather than the assets, your wealth will stay within a trust. You must remember your trust deed within the SMSF, as it will take precedence over the will. This means, when your super is with the super fund trustees, you have no power over the benefits of your self-managed super fund’s estate planning.
What happens to the SMSF money when you die?
When conducting correct superannuation estate planning, all your SMSF funds will be passed down to your death benefit nominees mentioned within the Binding Death Benefit Nomination or your dependants. The BDBN (Binding Death Benefits Nomination) also stands out as a valuable tool. When used correctly, your SMSF will be dealt with correctly according to the estate plan and how you wanted it.
You manage the entire SMSF, and the BDBN is a strategy, which a part of your estate planning. It will help in providing the SMSF benefits to the individuals or individuals whom you have nominated. Through BDBN, you can direct the trustees of your SMSF funds to pay up the death benefits of your estates. Doing so will help in providing the death benefits to the nominees.
Do SMSFs and trusts work together?
The trust stands out as a completely different option because all the super funds become a part of the estate’s will and get directed towards its beneficiaries. They are tax-effective and will protect all the assets that are acquired by your kids when their marriage or relationship breaks down. The trusts can play their role as an intergenerational money device. But in the case of SMSF services and trusts both of them will compliment, each other well.
Mistakes you must avoid during SMSF estate planning
When it comes to doing estate planning, there should be no room for mistakes. If you make a mistake during the planning, you will not get a second chance to fix it once your estate is set for delivery. Given below are some of the mistakes that you must avoid at all costs. Take a look!
- Inadequate documentation:
The BDBN governs the trustee’s consideration and helps prevent conflicts when it’s validly administered. You must go through the entire trust deed carefully. Determine all the needs for renewal, format, and witnesses. The tax office has confirmed within the SMSF determination SMSFD 2008/3 that all the standard rules applied to superannuation funds will not apply to SMSFs. Instead, the wording within the trust deed stands out as the key.
- Nominating the wrong individual:
During the SMSF Perth estate planning, you need to be very sure whom you want to specify for the death benefits. Remember, all death benefits are provided to individuals who are defined as successors under the superannuation law. This includes the spouse, children, executor of the estate, and individual within an interdependency connection. The death benefit will get directed to the person who suits well into this particular definition. But if you nominate some other individual, the nomination will become partially or fully invalid and will get reverted towards the trustee’s consideration.
- Not finalizing the divorce:
When you meet your demise, your current spouse or partner will be the current beneficiary and receive all the other superannuation death benefits. This will be fine when you are in a relationship with that person. But when you have parted ways or divorced your partner, he/she will still have a claim on your assets. The superannuation death benefit will only get provided to the former spouse if he/she is still finally dependant on you.
- Dying with a taxable element:
The withdrawals that are made right after the age of 60 are tax-free. But if you died and have a taxable component left within your bank account, your beneficiaries have to pay up a tax of 15% along with Medicare. This will only take place when the beneficiaries are qualified as a tax dependant. You can avoid this issue from taking place by cashing out the superannuation before you meet your demise.
But it requires excellent timing and proper tax planning. You cannot just take up the taxable components. It’s because the withdrawals are proportionately are divided into tax-free and taxable components. When you plan early, it will give you the chance to cash out the fund and get to make all the non-concessional contributions. Doing so will enable the fund to become a super and a tax-free component.
Steps on doing the SMSF estate planning correctly
Given below are some of the crucial steps that you must follow when doing estate planning. Take a look!
- You must identify all your assets and the assets within your broader estate, such as the life insurance, assets owned jointly, and many more.
- Make sure to identify all the risks that you want to address. The risks include the possible death, loss of mental capacity, or divorce of the beneficiary.
- The implementation and the design of the estate plan should consolidate all the assets, and you must take them into account. It must carry the flexibility to accommodate all the changes in the future and succession, minimization problems.
An excellent estate plan will protect your beneficiaries from paying up high taxes and cover all the assets. It will also help in protecting you from unexpected situations in the coming future. To know more about estate planning, you can get in touch with SMSF service providers.