Chris Reed, director of Business Concepts Group, said it is a myth that superannuation is automatically covered by a will.
“Superannuation does not automatically form part of your estate, it is not automatically covered by your will. It can basically leave the superannuation system and not touch your estate at all,” Mr Reed said in the latest BCG podcast.
“It’s important that SMSF members deal with their estate planning not only from a personal proposition, which is your rules and your power of attorney and everything else that you need outside the super system but also with the estate planning of their superannuation and their SMSF.”
Mr Reed said it doesn’t matter what type of super fund a person may have – there should be a nomination form in place to determine where their funds will go if they pass away.
“If you haven’t specifically nominated how your superannuation is to be dealt with, who knows where it might end up because it’s not automatically going to be dealt with by a will,” he warned.
“It can go to your estate if that’s what you want it to do, but you need to fill in the required documentation to get it there.”
Mr Reed debunked another misconception, clarifying that nominating a recipient for one’s superannuation after the member’s passing doesn’t necessarily guarantee a tax-free transfer of the funds.
“Potentially there could be some tax involved, and it can be tens of thousands of dollars depending on how much superannuation is there,” he said.
“SMSF members should consider when they are deciding how their superannuation is passed on, where they want it to go, and how much tax might be involved.”
He added that only SIS dependents can receive superannuation payments tax-free.
“SMSFs need to also plan what will happen to control of the fund once a member dies,” he said.
“It’s not just necessary to decide where death benefits will flow, but also who’s going to control the fund because whoever controls the fund will ultimately need to action the death benefit instructions,” he noted.
“Or if you haven’t got those death benefit nominations in place that are binding, then it can potentially come back to trustee discretion – they will actually have the choice.”
Regarding SMSFs, he emphasised that advisers should ensure their clients have effectively addressed the fund’s control as part of their estate planning.
“You need to look at death benefit nominations and who is going to receive that money and make sure all the paperwork in place and that it lines up and is not in conflict with each other.
“We have had situations where people have had pension documents with reversionary pensions, that are in conflict with death benefit nominations that have been made.
“So it’s important to make sure there is a comprehensive review of the estate planning that includes superannuation and SMSFs.”
