According to Townsends Business & Corporate Lawyers principal Peter Townsend, the biggest issue in estate planning is a recurrent assumption that a trustee’s will can “handle it all”.
“Just saying in a will that you want your death benefits to be given in a certain way won’t achieve it at all, because it has to be in the form of a binding death benefit nomination which accords with superannuation law,” he told SMSF Adviser.
“If there is no binding death benefit nomination then the remaining member trustee has the right to decide where the death benefit goes… which can cause major problems, especially in blended families.”
According to Mr Townsend, trustee incapacity is also an overlooked part of the estate planning process and can result in a trustee losing their role in an SMSF, thereby being at the mercy of other members of the fund.
“One minute everything is going along solidly, and you think 'I am going to live till 85 and have a wonderful retirement', and then 10 seconds later you have a stroke and everything changes overnight,” he said.
“You have to ignore the ‘likely’ result and instead deal with a ‘possible’ result, which means setting up structures to handle trustee incapacity at the very time the SMSF is set up. That way there are no gaps,” he said.
Mr Townsend believes corporate trustees are strongly favoured “no matter what” for the simple reason that they “don’t die”.
“Individual trustees unfortunately have a way of dying and when that happens any assets that they held in their name… have to then be transferred into the name of the new individual trustee,” he said.
“That transfer can be expensive, time-consuming and administratively cumbersome. If you have a corporate trustee you don’t have that problem.”