Recently, I was asked how SMSF Trustees can prepare for situations where they become incapacitated or no longer wish to manage their fund. These questions highlight the profound concern people have about transferring control of their wealth and ensuring their well-being. To address this concern, I’ve developed a simple checklist for SMSF trustees to consider their options. This list is not exhaustive, so please feel free to add your tips or suggestions in the comments below.
When planning for the management of your SMSF, the first step is to read the Deed!
- Do you have the original or a certified copy of the Deed?
Who will manage your fund if you become incapacitated or pass away?
- For Corporate Trustees:
- On death: You can leave the shares in the trustee company to your chosen individual(s) via your will, granting them the right to become a director of the trustee company.
- For incapacity: Provide an Enduring Power of Attorney (EPOA). If necessary, you can resign as a director, and your appointed EPOA will take your place. If your spouse is the only other member, they will become the sole director.
- For Individual Trustees:
- On death: Your executor will typically have the right to become a trustee of the fund.
- For incapacity: Provide an EPOA. If required, you can resign as a trustee, and your EPOA will be appointed in your place. If your spouse is the only other member, they will need to find a second person to act as a trustee or transition to a sole director company trustee.
Considerations when choosing an EPOA/Executor:
- Are they financially savvy and able to make informed decisions?
- Will they seek advice from specialists if necessary?
- Are there potential conflicts between beneficiaries, such as sibling rivalry or issues in blended families?
- Would appointing two or more EPOAs/Executors provide added safety or support?
- A power of attorney (POA) can become effective immediately or upon a future event, such as mental incapacity.
- A POA can include specific clauses with instructions for its operation.
- If you have a spouse or dependents, consider including Dependents Clauses to ensure your funds can be used for their needs.
- Consider adding a Conflict of Interest clause to allow an EPOA to make decisions that benefit both you and themselves, even if it may affect other beneficiaries.
Who do you want to receive your SMSF account balance?
- For Spouses/Dependents:
- Consider using a Reversionary Pension election or a Non-Lapsing Binding Death Benefit Nomination to direct funds to beneficiaries or through your will using a Non-Lapsing Binding Death Nomination to your Legal Personal Representative, with the option to set up a Testamentary Trust in your will. (Note: Normal Binding Death Benefit Nominations lapse after three years.)
- For Adult Children:
- Use a Non-Lapsing Binding Death Benefit Nomination to direct funds directly to the beneficiary or via your will using a Non-Lapsing Binding Nomination to your Legal Personal Representative, with the option to establish a Testamentary Trust.
- For Parents, Siblings, or Non-Family Members:
- Use your will with a Non-Lapsing Binding Death Benefit Nomination to your Legal Personal Representative, with the option to set up a Testamentary Trust.
- Special Needs Beneficiaries:
- For disabled beneficiaries, consider a Special Disability Trust.
- For beneficiaries who are financially irresponsible, in a litigious career, or facing potential bankruptcy, consider a Testamentary Trust.
Who do you want to manage your care options if you become incapacitated?
- Ensure you have an Enduring Power of Guardianship in place so a trusted family member or friend can make decisions about your lifestyle and medical treatment if you become mentally incapable.
- Have you established an Advanced Healthcare Directive in case you become terminally ill and cannot articulate your wishes?
- Have you discussed your wishes and preferences with your chosen Enduring Guardian, explaining your decisions so they can address any concerns from family members?
Considerations when choosing an Enduring Guardian:
- Are they capable of making personal decisions under pressure?
- Can they handle potential conflicts with other family members, such as sibling rivalry or blended family dynamics?
- Should you consider appointing two or more Enduring Guardians for safety and support?
Information your Attorneys/Executors will need:
- Bank Accounts and Investments:
- BSB and account numbers for any accounts or credit cards you have.
- The HIN, SRN of any personal or SMSF shareholdings.
- Account IDs for share brokers, online banking, and managed fund holdings.
- Location of property deeds and contact details for your property manager.
- Insurance:
- Details of policies, including policy numbers and types of insurance.
- Information about Life and TPD cover, motor vehicles, house insurance, private medical insurance, and funeral plans.
- Advisers:
- Contact details for your accountant, financial planner, lawyer, or other professional advisors.
- Business Records:
- Details of where company records are kept and the computer the ASIC Corporate Key is on.
- Your Secret Place:
- Identify the location of important documents, such as certificates of property title, jewelry, valuables, or personal items stored in safe custody or hidden away.
- Your Digital Life:
- Include login details for all your email and loyalty scheme accounts, as well as memberships to social media and cloud data sites, so your executors and family can access your online data, including books or music files.
- Appoint a Legacy Contact if you use Facebook.
- Provide instructions on what should and shouldn’t be shared with family.
- Direct Debits:
- Include details of any direct debits so they can be canceled pending a grant of probate.
- Superannuation:
- Include your most recent superannuation statement(s) and, if applicable, the financial statements for your self-managed super fund.
Important Point: Regularly discuss your wishes with your Executors, Powers of Attorney, and Enduring Guardians. Share your preferences regarding lifestyle, healthcare, and treatment options with them and, if possible, with the broader family. This ensures everyone understands your wishes and can help avoid family conflict. While Australians may be reluctant to talk about illness or death, having these conversations is crucial to ensure your wishes are followed.
As I mentioned earlier, this list is not exhaustive, so please share your tips or suggestions in the comments below. I hope this guidance has been helpful, and I appreciate your feedback. If you want to talk to some please book meeting by clicking the link>>
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