The strategy: To safeguard my self-managed super fund (SMSF) in case I die or am unable to manage my affairs.
Do I need to do that? Most super funds are set up by couples when old age and death are something to worry about later. But the director of SMSF consulting and auditing with Partners Superannuation Services, Martin Murden, says funds are starting to run into problems later on when one partner has died, leaving the other in sole charge of the fund.
For starters, if you set up the fund so that both of you acted as individual trustees, you'll have to change the trusteeship of the fund as self-managed funds cannot have a single trustee.
Murden says you'll need to either appoint a second trustee or convert to a corporate trustee. Having a company as trustee means you can continue to run the fund as the sole director or appoint a second director to help out.
Many people set up their fund with a corporate trustee anyway so it is simple just to continue on with one director, but Murden says this is likely to cause problems further down the track if you are ill, lose some of your mental faculties or die unexpectedly as no one has been appointed to run the fund in your absence.
What should I do? One option discussed previously in this column is to appoint an external trustee who can run the fund for you. But if you're hale and healthy, you may not want to go down this route.
Murden says another option is to give someone you trust a power of attorney so that they can take control of your super fund if you're unable to manage it. If (or when) you die, the executor of your estate will take over and wind up the fund.
Murden says you can also appoint a family member, usually one of your children, as the second director so that the fund can continue to operate if you're unwell.
When you die, that trustee will work with your executor (or it may be the same person) to wind up the fund.
Can I include my children in the fund so that it continues after my death? There can be benefits in having an inter-generational self-managed fund, but Murden says many children prefer to have their own fund. If this is the case, he says you could make them trustee members by having them invest a nominal amount of their super in the fund (say $100). But he says the fund would still need to be wound up on your death as your adult children would not qualify as dependents for the purposes of continuing your pension and it would not be worthwhile maintaining it for their nominal investment.
What else do I need to consider? Murden says another potential issue is who gets the money in your super fund when you die. Super does not form part of your estate and can't be dealt with in your will, unless the trustee transfers the money to your estate after your death.
Murden says you should set up a binding death benefit nomination to ensure your super is distributed in accordance with your wishes.
He says you should check that your trust deed allows a non-lapsing binding nomination so the nomination is still valid when you die. He says binding nominations in public super funds last only for three years and some self-managed fund trust deeds also provide for nominations to lapse after three years. You can have your trust deed amended to allow a non-lapsing nomination.
He says the nomination should be prepared by the fund member and/or their legal adviser as it is not covered by accountants' professional indemnity insurance.
But it would still be worthwhile getting tax advice as death benefits paid to non-dependents are subject to tax.