BENEFICIARY NOMINATIONS

To quote an oldie but a goodie.

Ms Lane, a 5^th grade math teacher asked her pupils. An SMSF member dies leaving a large superannuation balance of ten million dollars, he has a spouse and 5 children from a previous marriage. He has given the trustee of his SMSF a binding nomination – his wife is to receive 50% and his children to receive the balance equally between them. What does each one of them get?

As always with jokes like this there is a little Johnny and Johnny raises his hand. Ms Lane asks Johnny for his answer, and without hesitation Little Johnny says “A Lawyer”

And that folks is about the strength of it. Among the growing pool of professionals ready to benefit from superannuation are lawyers and there are number of court cases that demonstrate this.

A nomination made by a member of an SMSF is the most likely nomination to be challenged, for all sorts of reasons.

So, beneficiary nominations – do you have yours right?

There are some things that a member of an SMSF can do to ensure that their nominations are followed. These include but not limited to, ensuring that the deed governing the fund confirms the conditions of the nomination, most importantly that the nomination is correctly drafted, that the member can confidently trust the trustee(s) that would be in control of the fund after their passing to act honestly upon the nomination.

As with Wills it is not possible to entirely control what happens in regard to our wishes after we pass, but a well written nomination, backed up by an equally well written SMSF deed will make that nomination more certain.

That is without mentioning that the laws governing superannuation also restrict who may be nominated.

It’s also important to regularly review the nominations made as life circumstances impact on a nomination. For example upon retirement and commencement of a pension strategy members often nominate a reversionary beneficiary, this can also open a can of worms if there are any likely challenges.

It is a good idea not to forget the tax impact of benefits distributed to non-financial dependents. And while we are on not forgetting a simple uncomplicated strategy available to a large section of SMSF members is the timing of the benefit. In quite a number of cases there is some warning and a strategy to remove the benefits from superannuation pre passing can possibly simplify the distribution of the benefits and avoid taxes to non-financial dependents.

Therefore it’s a good idea to be constantly aware of the possible complications and be pro-active in striving to avoid the pitfalls. If you want further information or assistance call us at Optima Partners.

LIZ GIBBS

SMSF MANAGER – OPTIMA PARTNERS