While the rate of SMSF establishment is steadily increasing, the number of SMSF members organising their estate planning effectively is not, said Peter Townsend, principal at Townsends Business and Corporate Lawyers.
“The population, in particular the baby boomer population, is very materially underprepared for their mortality,” he said.
“We try to get people to think more carefully about their estate planning at the time they set up their [SMSF], with not much luck.”
Adequate estate planning is also imperative for Generation Y, which will be the first generation to have experienced compulsory super for a majority of their working lives, said Heffron’s technical specialist Meg Heffron.
“The fact that people are building up substantial super balances at a relatively young age means estate planning is an issue even for the young,” she said.
“If they don’t handle their estate planning appropriately, we have a ticking time bomb on our hands.”
In addition, basic misunderstandings of the estate planning process are also widespread, often leading to non-tax effective or incorrect transferral of assets.
A common, almost “universal” misunderstanding related to super is that from an estate planning perspective, super normally does not form part of a trustee’s estate, said Mr Townsend.
“If you ask a member [or] trustee how they deal with their superannuation assets, 99.5 per cent would say 'Do it through your will', but that’s not quite right,” he said.
“That’s not to say you can’t deal with those proceeds through the will, you can, but only after you get those proceeds into the will in the first place,” he added.