Asset Protection within a SMSF The SMSF as an asset protection and estate planning vehicle

Transcription

1 Asset Protection within a SMSF The SMSF as an asset protection and estate planning vehicle Speaker Mike Fitzpatrick Solicitor and Barrister Clarendene Estate Planning Lawyers Clarendene Pty Ltd Estate Planning Lawyers 2008

2 Important Disclaimer No person should rely on any part of the contents of this presentation without first obtaining advice from a qualified professional person. This presentation is given on the terms and understanding that the author is not responsible for the results of any actions taken on the basis of information in this presentation, nor for any error in or omission from this presentation. The author hereby expressly disclaims all and any liability and responsibility to any person, whether a purchaser, recipient or reader of this presentation or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this presentation. Clarendene Pty Ltd - Estate Planning Lawyers Page 2

3 Modern Estate Planning Issues While you are alive holding wealth securely and tax effectively and on your death the transfer of wealth Tax effectively So that it stays within the family Protected from legal claims from spouses and creditors Sensitively to the needs and welfare of the beneficiaries and their descendants and To perhaps satisfy Philanthropic objectives Clarendene Pty Ltd - Estate Planning Lawyers Page 3

4 Why the worry about Asset Protection Society more prone to litigation HIH and Insurance Company Failures New Bankruptcy Law plug loopholes Tax complexities - Service Trusts Fragility of Relationships Severe Laws impose personal liabilities on directors, managers advisers etc Sophisticated investments structures more widespread in investment community Clarendene Pty Ltd - Estate Planning Lawyers Page 4

5 Seminar Overview Asset Protection Basics Review of New Bankruptcy Provisions SMSF as a wealth creation vehicle SMSF as a wealth protection vehicle SMSF as an estate planning vehicle The 5 Super Estate Planning Issues Clarendene Pty Ltd - Estate Planning Lawyers Page 5

6 Asset Protection under the New Laws Rules 1. You can t get blood out of a stone is still the basic principle 2. The best time to implement asset protection is when it is not needed 3. Any strategy where the obvious primary focus is asset protection could be at risk of failure 4. Be careful with your written advice 5. Avoid unnecessary directorships 6. Asset protection is a journey not a destination practice constant vigilance Clarendene Pty Ltd - Estate Planning Lawyers Page 6

7 Director s Risk * Company structure (or trust with company trustee) provides measure of limited liability * Does not protect directors (executive or nonexecutive) and financial controllers against: * Personal borrowings & guarantees, eg to bank/suppliers * Losses incurred while company was insolvent * Statutory liabilities, eg PAYG, injuries to employees/members of the public * Failure to properly satisfy themselves of company solvency - see Waterwheel case Clarendene Pty Ltd - Estate Planning Lawyers Page 7

8 Partner s Risk The liability of partners is joint and several Clarendene Pty Ltd - Estate Planning Lawyers Page 8

9 New Laws overhaul Bankruptcy Act Bankruptcy and Family Law Legislation Amendment (Anti Avoidance) Act 2005 ( BFLLAA ) March 2005 Bankruptcy Legislation Amendment (Anti Avoidance) Act 2006 ( BLAAAA ) May 2006 Bankruptcy Legislation Amendment (Superannuation Contributions) Act 2007 April 2007 Clarendene Pty Ltd - Estate Planning Lawyers Page 9

10 Asset Protection - Issues S120 Bankruptcy 5 year clawback for undervalue transaction S121 Bankruptcy unlimited clawback where main purpose is to defeat claims of creditors Super Contribution Clawback Cummins Case Richstar Case Clarendene Pty Ltd - Estate Planning Lawyers Page 10

11 Bankruptcy Act Key provisions s116(1) Divisible property (must be capable of assignment) s116(2) Excluded assets (see Reg 6.03 for household items) s116(5) RBL limit abolished from 1 July 2007 s118(2) Exclusion of maintenance payments s120 Undervalued transactions within 4 (or 5) years of earliest act of bankruptcy s121 and s121a General anti avoidance provisions S128 Family Law and Superannuation Clawback Clarendene Pty Ltd - Estate Planning Lawyers Page 11

12 Bankruptcy Act Key provisions s139a-139h Transactions involving related entities/persons s139l Divisible income s252 Possible personal liability of legal personal representative, eg if not acting in good faith s263 Concealment of assets 1st of the offences provisions s270 Adequate business records to be kept for 5 years s301/302/302a/302b Forfeiture clauses void in contracts, trust deeds etc Clarendene Pty Ltd - Estate Planning Lawyers Page 12

13 Assets at Risk - s 116(1) Personally owned assets unless subject to constructive trust Parianos v Melluish Assets can be made subject to mortgage, guarantee or indemnity Unpaid present or future entitlements, eg trust allocations, remainder interests Retained profits in (and loans from) trading (or even beneficiary owned) companies Unsecured loans, eg to trusts & companies Future direct inheritances Clarendene Pty Ltd - Estate Planning Lawyers Page 13

14 Excluded Assets s116(2) Property held in trust for another person Certain household items, eg television, bedding Certain property of sentimental nature Certain property needed by bankrupt to earn income ie tools etc Means of transport not exceeding set value limit Clarendene Pty Ltd - Estate Planning Lawyers Page 14

15 Excluded Assets s116(2) cont Superannuation and life insurance policies not affected by S128 clawback Certain family law payment splits Any right to recover damages or compensation for personal injuries Payments under a Rural Support Scheme Assets required to be paid to a spouse under a Family Law Court Order Clarendene Pty Ltd - Estate Planning Lawyers Page 15

16 Bankruptcy Act Major Anti-Avoidance Provisions S120 clawback of assets transferred S121 Part IVA style main purpose provision Bankruptcy Act amendments trustee can Intervene in family law proceedings Access bankrupt s income prior to its receipt Seek Court approval to override pre or mid relationship binding financial agreements Treat entering into such agreements an act of bankruptcy Clarendene Pty Ltd - Estate Planning Lawyers Page 16

17 Section 139DA Assets of Natural Persons Assets of natural persons attackable where, during the examinable period: Person acquired asset as a result of the direct or indirect result of financial contributions by bankrupt Bankrupt derived benefit from the property Person still has interest Order cannot exceed the amount by which the value of the increase as a result of the financial contributions (section 139EA). Clarendene Pty Ltd - Estate Planning Lawyers Page 17

18 Clawbacks of Asset Transfers s120 Definition of transfer includes Gifts and forgiveness of debts Guarantees and mortgages Preference dealings Clawback periods None - arm s length terms/fully commercial 4 years - gifts with no immediate cloud Otherwise 5 years (no limit for fraud) Clarendene Pty Ltd - Estate Planning Lawyers Page 18

19 S 121 General Anti-Avoidance Provision Provision similar to Part IVA in ITAA 1936 Transfers are void against bankruptcy trustee if main purpose is to defeat creditors ITAA Part IVA (sole or dominant purpose) and s121 (main purpose) mutually exclusive Some exceptions to divisible assets or income specifically made subject to s121, eg s123(6) S121A applies where consideration is given to 3 rd party Clarendene Pty Ltd - Estate Planning Lawyers Page 19

20 Cummins Case [2006] HCA 6 The Trustees of the property of John Daniel Cummins v Cummins [2006] HCA 6 7 March 2006 Review and Discussion Clarendene Pty Ltd - Estate Planning Lawyers Page 20

21 Summary Asset Protection The protection offered by any of these vehicles is not absolute Ownership Choices for Risk Individual Life and critical illness insurance also offers significant asset protection Domestic Partner High Gearing Family Trust Superannuation Capital Reserved Trust Clarendene Pty Ltd - Estate Planning Lawyers Page 21

22 SMSF as a Wealth Creation Vehicle Modern SMSF with good Trust deed Can invest widely Attract low income tax and CGT tax rates Provides access for incapacity/disability Allows zero tax in pension phase Provides excellent protection from Creditors Can provide ongoing tax benefits to family dependants on death of member Clarendene Pty Ltd - Estate Planning Lawyers Page 22

23 SMSF as a Wealth Creation Vehicle Disadvantages Compliance Some limits on investments Limitations of access prior to retirement need to satisfy a condition of release Estate Planning Issues Katz s Case Clarendene Pty Ltd - Estate Planning Lawyers Page 23

24 What the ATO thinks The removal of age-based deduction limits, reasonable benefit limits (RBLs) and tax on superannuation benefits from taxed funds for people 60 and over will increase the concessions provided to superannuation. These changes, in conjunction with the continuing tax exemption provided for income from superannuation assets supporting a pension, will make superannuation an attractive vehicle for retaining assets to minimise tax. There will be an incentive for people to transfer income producing assets currently held outside superannuation to the concessionally taxed superannuation system. Clarendene Pty Ltd - Estate Planning Lawyers Page 24

25 SMSF as a Wealth Creation Vehicle VERDICT When compared to other tax and asset structures EXCELLENT Clarendene Pty Ltd - Estate Planning Lawyers Page 25

26 SMSF as a Wealth Protection Vehicle BANKRUPTCY ACT SECT 116(2) (d) property NOT divisible amongst the creditors of the bankrupt. (d) subject to sections 128B, 128C and 139ZU: (i) policies of life assurance or endowment assurance in respect of the life of the bankrupt or the spouse of the bankrupt; (ii) the proceeds of such policies received on or after the date of bankruptcy; (iii) the interest of the bankrupt in: (A) a regulated superannuation fund; or (B) an approved deposit fund; or (C) an exempt public sector superannuation scheme; (iv) a payment to the bankrupt from such a fund received on or after the date of the bankruptcy, if the payment is not a pension; Clarendene Pty Ltd - Estate Planning Lawyers Page 26

27 SMSF as a Wealth Protection Vehicle BANKRUPTCY ACT SECT 128B(1) Superannuation contributions made to defeat creditors contributor later becomes a bankrupt - Transfers that are void: (1) A transfer of property by a person who later becomes a bankrupt is void if: (a) the transfer is a contribution to an eligible superannuation plan; and (b) the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and (c) the transferor's main purpose in making the transfer was: (i) to prevent the transferred property from becoming divisible among the transferor's creditors; or (ii) to hinder or delay the process of making property available for division among the transferor's creditors; and (d) the transfer occurs on or after 28 July Clarendene Pty Ltd - Estate Planning Lawyers Page 27

28 SMSF as a Wealth Protection Vehicle BANKRUPTCY ACT SECT 128B (2)&(3) Showing the transferor's main purpose in making a transfer (2) The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(c) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent. (3) In determining whether the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(c), regard must be had to: (a) whether, during any period ending before the transfer, the transferor had established a pattern of making contributions to one or more eligible superannuation plans; and (b) if so, whether the transfer, when considered in the light of that pattern, is out of character. Clarendene Pty Ltd - Estate Planning Lawyers Page 28

29 SMSF as a Wealth Protection Vehicle VERDICT When compared to other tax and asset structures EXCELLENT Main advantage no S120 clawback Clarendene Pty Ltd - Estate Planning Lawyers Page 29

30 SMSF as an Estate Planning Vehicle PROBLEMS Limits to beneficiaries Limits to multigenerational application Compulsory cashing on members death Limits to who can receive a pension Taxation issues Super is a Family Law Asset Clarendene Pty Ltd - Estate Planning Lawyers Page 30

31 SMSF as an Estate Planning Vehicle SIS REGULATIONS 1994 REG 6.21 Compulsory cashing of benefits on Death (1)... a member's benefits must be cashed as soon as practicable after the member dies. (2)... benefits may be cashed under this regulation is any one or more of the following forms: (i) a single lump sum; or (ii) an interim lump sum and a final lump sum Can be paid as (i) 1 or more pensions; (ii) the purchase of 1 or more annuities. Clarendene Pty Ltd - Estate Planning Lawyers Page 31

32 SMSF as an Estate Planning Vehicle SIS REGULATIONS REG 6.21 (2A) If a member dies on or after 1 July 2007, a pension can only be paid to a recipient who is: (a) (b) (i) (ii) a dependant of the member; and in the case of a child of the member: less than 18 years of age; or being 18 or more years of age: (A) is financially dependent on the member and less than 25 years of age; or (B) has a disability of the kind described in s8 of the Disability Services Act Clarendene Pty Ltd - Estate Planning Lawyers Page 32

33 SMSF as an Estate Planning Vehicle SIS REGULATIONS REG 6.21 (2B) If benefits in relation to a deceased member are being paid to a child of the deceased member in the form of a pension or an annuity, the benefits must be cashed as a lump sum on the earlier of: (a) the day on which the annuity or pension is commuted, or the term of the annuity or pension expires (unless the benefit is rolled over to commence a new annuity or pension); and (b) the day on which the child attains age 25; unless the child has a disability of the kind described in s8 of the Disability Services Act (3) it is sufficient if, instead of being cashed, the benefits are rolled over as soon as practicable for immediate cashing. Clarendene Pty Ltd - Estate Planning Lawyers Page 33

34 SMSF as an Estate Planning Vehicle DISABILITY SERVICES ACT SECT 8 (1) persons with a disability that: (a) is attributable to an intellectual, psychiatric, sensory or physical impairment or a combination of such impairments; (b) is permanent or likely to be permanent; and (c) results in: (i) a substantially reduced capacity of the person for communication, learning or mobility; and (ii) the need for ongoing support services. Clarendene Pty Ltd - Estate Planning Lawyers Page 34

35 SMSF as an Estate Planning Vehicle SIS REGULATIONS REG 6.22 Limitation on cashing of benefits in favour of persons other than members or their legal personal representatives (1) a member's benefits must not be cashed in favour of a person other than the member or the member's legal personal representative (LPR): (2) If the member has died the conditions of this sub-regulation are satisfied if the benefits are cashed in favour of either or both of the following: (a) the member's LPR; (b) one or more of the member's dependants. Clarendene Pty Ltd - Estate Planning Lawyers Page 35

36 SMSF as an Estate Planning Vehicle SIS ACT S10 "dependant", in relation to a person, includes the spouse of the person, any child of the person and any person with whom the person has an interdependency relationship. Clarendene Pty Ltd - Estate Planning Lawyers Page 36

37 SMSF as an Estate Planning Vehicle SIS ACT SECT 10A Interdependency relationship (1), 2 persons (whether or not related by family) have an interdependency relationship if: (a) they have a close personal relationship; and (b) they live together; and (c) one or each of them provides the other with financial support; and (d) one or each of them provides the other with domestic support & personal care. (2). for the purposes of this Act, if: (a) 2 persons (whether or not related by family) satisfy the requirement of paragraph (1)(a); and (b) they do not satisfy the other requirements of an interdependency relationship under subsection (1); and (c) the reason they do not satisfy the other requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability; they have an interdependency relationship. Clarendene Pty Ltd - Estate Planning Lawyers Page 37

38 SMSF as an Estate Planning Vehicle Taxation of Lump Sum Super Death Benefits General Principles 1. Benefits paid to spouse or tax dependant on death of member are paid tax free 2. Benefits paid to non tax dependant are taxed at either 16.5% or 31.5% (proceeds of Insurance policies owned by Fund) 3. Benefits paid to LPR are taxed depending on ultimate recipient status. Clarendene Pty Ltd - Estate Planning Lawyers Page 38

39 SMSF as an Estate Planning Vehicle INCOME TAX ASSESSMENT ACT SECT Meaning of death benefits dependant A death benefits dependant, of a person who has died, is: (a) the deceased person's spouse or former spouse; or (b) the deceased person's child, aged less than 18; or (c) any other person with whom the deceased person had an interdependency relationship under Sec just before he or she died; or (d) any other person who was a dependant of the deceased person just before he or she died. Clarendene Pty Ltd - Estate Planning Lawyers Page 39

40 Super and Estate Planning General Principles 1. Super Death benefits are a non estate asset you can t leave super in a Will. Government has made it clear that it does not wish to see Superannuation used as an estate planning vehicle as in the past. 2. The taxable proportion of a Super Death benefit is not taxable only if it is paid to a spouse or tax dependant of the deceased otherwise it is subject to tax commencing from 15%. Clarendene Pty Ltd - Estate Planning Lawyers Page 40

41 Super The 5 Main Estate Planning Issues 1. What is the best way to pass control of a SMSF on death or incapacity? 2. What can be done to reduce or eliminate super death benefit taxes? 3. What will be the best way to pay a benefit pension or lump sum? 4. Can you protect a vulnerable/incapable/insolvent beneficiary from losing/wasting a death benefit? 5. Which will be best - binding, non binding or non lapsing nominations? Clarendene Pty Ltd - Estate Planning Lawyers Page 41

42 SMSF as an Estate Planning Vehicle DEFINITION OF DEPENDANT General Principles 1.No definition in Tax Act or SISA 2.Common Law principles apply 3.See Malek Case Judgement for review of authorities Malek -v- Comm of Taxation [1999] AATA 678 (13 Sept 99) 4. It s not the money - it s the extent of the dependency on the financial contribution that counts. Clarendene Pty Ltd - Estate Planning Lawyers Page 42

43 SMSF as an Estate Planning Vehicle Super benefits paid to trustee of deceased estate Sec ITAA 1997 (2) To the extent that 1 or more beneficiaries of the estate who were death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit: (a) the benefit is treated as if it had been paid to you as a person who was a death benefits dependant of the deceased; and (b) the benefit is taken to be income to which no beneficiary is presently entitled. Clarendene Pty Ltd - Estate Planning Lawyers Page 43

44 SMSF as an Estate Planning Vehicle Sec ITAA 1997 (3) To the extent that 1 or more beneficiaries of the estate who were not death benefits dependants of the deceased have benefited, or may be expected to benefit, from the superannuation death benefit: (a) the benefit is treated as if it had been paid to you as a person who was not a death benefits dependant of the deceased; and (b) the benefit is taken to be income to which no beneficiary is presently entitled. Clarendene Pty Ltd - Estate Planning Lawyers Page 44

45 SMSF as an Estate Planning Vehicle VERDICT When compared to other tax and asset structures on its own Limited flexibility Needs help from other structures to perform optimally Clarendene Pty Ltd - Estate Planning Lawyers Page 45

46 Passing control of a SMSF SIS ACT 1993 S(17A) A superannuation fund does not fail to satisfy the conditions...by reason only that: (a) a member of the fund has died and the legal personal representative of the member is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member... : (i) beginning when the member of the fund died; and (ii) ending when death benefits commence to be payable in respect of the member of the fund; or (b) the legal personal representative of a member of the fund is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during any period when: (i) the member of the fund is under a legal disability; or (ii) the legal personal representative has an enduring power of attorney in respect of the member of the fund; or (c) if a member of the fund is under a legal disability because of age and does not have a legal personal representative--the parent or guardian of the member is a trustee of the fund in place of the member. Clarendene Pty Ltd - Estate Planning Lawyers Page 46

47 Passing control of a SMSF ISSUES Corporate Trustee best Company should be established as a single director company Avoid including others as members of the Fund ie children Voting rights in proportion to benefits Necessity for sophisticated Will and Power of Attorney addressing governance issues of SMSF Clarendene Pty Ltd - Estate Planning Lawyers Page 47

48 Passing control of a SMSF Clauses often omitted from SMSF Trust Deeds Binding Nomination provisions including indefinite (non lapsing) nominations. Provision allowing/requiring LPR to act as Trustee on death or incapacity of member. Provision allowing Trustee to treat pension as a reversionary pension on death of pensioner member. In specie payment of benefits. Clarendene Pty Ltd - Estate Planning Lawyers Page 48

49 Passing control of a SMSF Clauses needed in Wills Adjustment for unequal superannuation benefits (and any reserves), eg if only one child is a dependant at fund member s death. Effective transfer of control of SMSF - Proper linking between Will and superannuation (and family trusts?). Maintaining bankruptcy protection of life insurance and superannuation death benefits. Streaming of taxable super to tax dependants. Super Proceeds Trust Testamentary Trusts. Clarendene Pty Ltd - Estate Planning Lawyers Page 49

50 Strategies to deal with Super Death Benefit Taxes 1. Withdraw and re-contribute to maximise non concessional. 2. Maximise non-concessional contributions. 3. Start pension and then contribute nonconcessional to accumulation as a way of segregating taxable and non-taxable. Clarendene Pty Ltd - Estate Planning Lawyers Page 50

51 Strategies to deal with Super Death Benefit Taxes 4. Crystallize unrealised gains while in pension phase. 5. Stopping and starting pensions to deal with CGT. 6. Removing taxable part of Super prior to death. 7. Establishing and documenting dependency or interdependency relationships. 8. Set up Last minute withdrawal procedure. Clarendene Pty Ltd - Estate Planning Lawyers Page 51

52 Pension or lump sum? No one answer The widow s best friend could be a disaster for an 18 year old drug addict Pension/annuities (if available) are usually the better option for creating income stream Pension great for disabled dependants Access for trust capital for surviving parent Pension income paid directly to child once child is 18 years capital to child by age 25 years Need both options tax and superannuation laws very much subject to change Clarendene Pty Ltd - Estate Planning Lawyers Page 52

53 Children as Dependants Child (qualifies if any one of the categories below apply) Under 18 Pension Yes L/Sum Super Yes L/Sum Tax Free Yes & financially dependent Yes Yes Yes & interdependent No Yes Yes 25+ & financially dependent No Yes Yes 25+ & interdependent No Yes Yes 18+ & independent No Yes No Any age significant disability Yes Yes No Clarendene Pty Ltd - Estate Planning Lawyers Page 53

54 No tax on commutation - child pension INCOME TAX ASSESSMENT ACT SECT Commutation of income stream if you are under 25 etc. (1) A superannuation lump sum that you receive from a complying superannuation plan is not assessable income and is not exempt income if: (a) the superannuation lump sum arises from the commutation of a superannuation income stream; and (b) any of these conditions are satisfied: (i) you are under 25 when you receive the super lump sum; (ii) the commutation takes place because you turn 25; (iii) you are permanently disabled when you receive the superannuation lump sum; and (c) you had received one or more superannuation income stream benefits from the superannuation income stream before the commutation because of the death of a person of whom you are a death benefits dependant. Clarendene Pty Ltd - Estate Planning Lawyers Page 54

55 Protecting the beneficiary Protection needed for Family Law Claims Business Failure/bankruptcy Drug Addiction Bipolar Spendthrift Protective Trusts often better strategy Clarendene Pty Ltd - Estate Planning Lawyers Page 55

56 Protecting the beneficiary Which is better A Special Disability Trust or A Super Incapacitated Child pension? Consider a SMSF Pension in every situation where your client has a severely incapacitated child (of any age). Clarendene Pty Ltd - Estate Planning Lawyers Page 56

57 Death Benefit Nominations - Which is best? 3 Types Non binding Binding Non lapsing Depends on the particular circumstances Generally the more you prescribe the more care you need to exercise No universal answer Choice of member s executor often crucial The on-going involvement of the financial planner both before and after death is crucial to ensuring the best result. Clarendene Pty Ltd - Estate Planning Lawyers Page 57

58 Death Benefits Who Decides? Indicative (advisory) member nominations Trustee must consider, but need not follow Most externally managed super funds Trustee has absolute discretion to choose between dependants and estate (subject to review by the Superannuation Complaints Tribunal) Self managed superannuation funds Decision made by executor (if appointed in time) and any remaining fund members or 2 nd director/trustee (not subject to review) All Deeds may permit binding nominations Clarendene Pty Ltd - Estate Planning Lawyers Page 58

59 Control of Trustee Katz -v- Grossman [2005] NSWSC 934 The Facts Mr and Mrs Katz have 2 kids Mr and Mrs Katz are each directors of Corp Trustee of their SMSF Mrs Katz dies and daughter is appointed director of Corp Trustee in place of deceased mother Mr Katz signs non binding death benefit nomination in favour of the 2 children equally and later dies Daughter appoints her husband as director of trustee company and decides to pay entire super benefit to herself Court does not interfere with that result and rejects form of substance argument out of hand Clarendene Pty Ltd - Estate Planning Lawyers Page 59

60 Lessons to learn from Katz v Grossman This case highlights the importance of having the right persons as trustees of an SMSF who are making the decision as to payment of the death benefits. Clearly, in this case, Ervin's intention was for both of his children to benefit from his superannuation as he provided for in his nonbinding nomination. Among the preventative measures that can be taken are: The inclusion of adjustment Clauses in Wills; Implementation of binding death benefit nominations; Careful attention to the succession to the role of trustee. Clarendene Pty Ltd - Estate Planning Lawyers Page 60

61 Binding Nominations 3 Year Renewable Member determines receipt of death benefits s59(1a) (limited to dependants and/or legal personal representative) Not binding if contrary to Family Court order (s90mb Family Law Act) No requirement for fund to offer binding nominations Consequences must have been explained to member Must meet every prescribed requirement Not automatically revoked by divorce Lapse 3 years after signing (or last written confirmation) SMSF can have non-lapsing nominations Should cover contingencies, eg 1 st choice dependant dies Financial EPA should include an express power to confirm Clarendene Pty Ltd - Estate Planning Lawyers Page 61

62 Indefinite (Lifetime) Binding Nominations If Deed permits, SMSF members can make either a binding nomination that: Potentially lasts only 3 years, but is renewable; or Potentially lasts until death (ie unless revoked). Both types can only benefit dependants and/or estate and need to cover contingencies, eg if 1 st choice dependant predeceases. Binding nominations mean that trustees have no discretion as to payment, but Removes flexibility and may result in more tax being paid. Clarendene Pty Ltd - Estate Planning Lawyers Page 62

63 Binding Nominations Advantages Certainty Binds the trustee whoever they may be Can be drafted to allow cascading nominations No delay in effecting payment Clarendene Pty Ltd - Estate Planning Lawyers Page 63

64 Binding Nominations Disadvantages Inflexibility Change of circumstances and change of tax status of nominees can cause unintended consequences Formal requirements must be followed to the letter Need for renewal Loss of capacity an issue Clarendene Pty Ltd - Estate Planning Lawyers Page 64

65 Binding nominations Can work well when member has executed Will with creative and flexible trust structures With typical normal families probably not appropriate for lack of flexibility More appropriate when dealing with blended families and where possibility of disputes are likely Clarendene Pty Ltd - Estate Planning Lawyers Page 65

66 Super Death Benefits Will Trust Settlor/ Willmaker Superannuation Fund Trustee Pays benefits directly to trustee or deceased estate Trustee Superannuation Death Benefits Trust Capital Reserved Surviving Parent Usually can hire and fire trustee Funds established for each dependant child Capital Fund Surviving Parent/Other Dependants Income Fund Excepted income tax concessions for child Child Under 18 Eventually receives capital, eg when surviving parent dies Clarendene Pty Ltd - Estate Planning Lawyers Page 66

67 Modern Will Trust Willmaker Option in Will to utilise 1 or more trusts. Crisis provision covers loss of capacity & bankruptcy Primary Beneficiary Major tax concessions for beneficiaries under 18 Spouse/ Children/Other Relatives Executor Trustee Beneficiary Controlled Testamentary Trust ( BCTT ) Related Companies/ Trusts Primary Beneficiary Hires & fires trustee & approves any exclusion of beneficiaries Charities/ Religious Bodies Class of potential Clarendene Pty Ltd - Estate Planning Lawyers beneficiaries Page 67

68 Remember 1. You can t leave super in the Will. 2. Do not try to make the SMSF the main estate planning vehicle in every case. 3. You can direct its control and reduce taxation by applying a combination of strategies which may involve the creative use of Super nominations and Will Trusts. 4. Do not underestimate the importance of comprehensive and professional estate planning when dealing with your clients superannuation. 5. Practice eternal vigilance re clients total estate planning affairs. Clarendene Pty Ltd - Estate Planning Lawyers Page 68

69 Questions? Mike can be contacted at Clarendene Pty Ltd - Estate Planning Lawyers Page 69

70 Thank You Clarendene Pty Ltd - Estate Planning Lawyers Page 70