Your what-to-do-if-I-die-first-or-I-get-dementia plan for your SMSF
MANY if not most Self-Managed Super Funds (SMSFs) have a couple as their members and trustees. Usually, one will die before the other. In many cases, legal incapacitation as a result of, for example, dementia, also occurs.
Such events are stressful and become even more stressful if there’s no plan in place.
An SMSF, although it can have a single member, must have a minimum of two individual trustees. So, if one of two trustees dies or becomes legally incapacitated, a new trustee must be found. By law, this must happen within six months, while some trust deeds stipulate an even shorter period.
The simplest way of dealing with legal incapacitation is for a couple to have enduring powers of attorney in place. The legislation permits an attorney to become a trustee of an SMSF. If the Trust Deed allows for the appointment of an attorney as trustee, the couple’s SMSF would effectively have two trustees in one person. However, in case of the death of an individual trustee, a new trustee must be appointed.
One solution to cover both the eventualities of incapacitation and death might be to appoint a corporate trustee for your SMSF, if the Trust Deed allows this. A corporate trustee is a company and generally requires only one director, a member of the fund, while your SMSF is administered by the corporate trustee.
If this scenario could apply to your SMSF, it is important to plan early and then to update that planning very regularly. You also need a will and binding death nominations. A binding death benefit nomination allows a member to advise the trustee who is to receive the member’s superannuation benefit in the event of the member’s death.
However, all this takes care of the (relatively) easy stuff. In ‘couple’ SMSFs, there is usually one of the two trustees and members of a couple’s SMSF who is the ‘expert’ who deals with the paperwork, the accountant (or in some cases the accounts without an accountant) and whatever else can be part of running an SMSF.
How will the ‘inexpert’ trustee run the SMSF if something happens to the ‘expert’ trustee?
One solution can be for the SMSF to be rolled over into a regular superannuation fund. The main things to watch there are (1) fees and charges, obviously, and (2) if there are people-friendly pension options available.
Another solution can be to engage a an SMSF administrator. These come in all shapes and sizes, but essentially with a suitable SMSF administrator the ‘inexpert’ surviving member of a ‘couple’ SMSF can continue with their SMSF, even though this, too, requires at least an understanding of how superannuation works.
Another option could be for the SMSF to be wound up and the benefits to be paid out to the surviving member. This may be attractive if the SMSF is not producing income at a level where it would be taxed outside super.
Just as important as deciding to do some planning is the engagement of a superannuation professional to help you nut out a plan in detail. Don’t do this alone.