What happens to your SMSF when you die?

Do you know what will happen with your self-managed super fund (SMSF) if you were to die or become incapacitated?  If you think that your lawyer or executor will look after “all that”, you are quite wrong. Left in the wrong hands, your fund could become non-compliant and subsequently be penalised.

If you look closely at the main definition of an SMSF which requires that all members must be trustees and all trustees must be members, you would realise that unless your lawyer or executor is also a member of your SMSF, it would not meet that core requirement and hence could be classed as non-compliant. The penalty on non-compliant funds is payment of a potential tax of 46.5% of the fund’s assets.

Although the superannuation legislation allows a six-month grace period after the death or loss of mental capacity of a member/trustee, there is a better option and it just requires some planning.

When you set up your fund (or reviewing it which you should do regularly) make sure that all members and trustees have enduring powers of attorney in place, which come into effect after any member’s loss of capacity. Your enduring power of attorney will act on your behalf so provide clear written instructions to the nominated person about how the fund is to be run. It is also important that you provide a copy of these documents to the fund administrator, the fund auditor, and your lawyer.

If the trustee of your fund is a company, and you are the only member of the fund, it would be wise to issue an appointor share to someone you can trust and rely on. An appointor share entitles the holder to appoint someone to carry out the director’s functions if a director of the company (ie. your trustee) has lost capacity.

To determine whether you can issue such a share, read through the constitution of your fund. You can change the constitution to allow this however you should seek professional advice to ensure it is done correctly.

Yes, this may sound complex but if you are not sure don’t put it in the ‘too hard basket’ – take the time to set things right now. Talk to us if you need assistance in this area.

 

Sources:

“7 Questions to Ask of your SMSF”  Clarendene Estate Planning Lawyers

Australian Taxation Office “SMSF enduring powers of attorney”  www.ato.gov.au

 

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