Integrated approach key to navigating SMSF legal headwinds

Speaking at the recent Tax Institute Superannuation Intensive Series 2021, Cooper Grace Ward partner Scott Hay-Bartlem said when considering the approach of estate planning, the biggest concerns facing SMSFs is when it only focuses on issues in a single-minded approach while isolating other key considerations which, in fact, will greatly impact the outcomes.

“Dealing with super on death is an estate planning decision and it’s as important as a will in conjunction with things like an enduring power of attorney, and when dealing with everything else, the key is you cannot do it in isolation, you can’t have a kind of a bubble for super and keep it outside the estate bubble,” Mr Hay-Bartlem said.

“There is no one-size-fits-all answer and it always depends, but we’ve seen too many situations where the super wasn’t dealt with as part of the estate planning or was not thought about in conjunction or they had two different decisions made completely different.”

Partner Clinton Jackson said SMSFs have to look at the planning as a whole and he has seen quite a few really well-crafted estate plans be completely messed up.

“For example, when we start drawing a pension or when making a binding death benefit nomination (BDBN), they are not decisions you can properly make in isolation,” he said.

“Then you’ve got to look at all of this together where, if you’ve got a reversionary pension to the spouse and you do a BDBN to the estate, you have to think about what are you doing, think about where this money is supposed to go, as what you’re doing is making the lawyers happy.

“You don’t want the lawyers having a field day on these files, you want to instead make sure you get it right.”

With issues always arising with super and estate planning, Mr Hay-Bartlem said it’s never been an easy area and it’s always been something that must be faced, but the approach is to keep it all together.

“What we find that evolves over time has been quite fascinating, watching how super disputes have continually widened in scope,” he said.

“Now when a file comes to us, if we’re acting for someone, the first thing we do is to blow-torch documents and there are so many complexities in the many documents that can undo a lot of the best estate plans.

“Always be aware of the inconsistencies where documents don’t work, and that is a really big issue SMSFs face. Things like the upcoming multi-member SMSFs will ramp up the complexity as well. All of my disputes have got multi-member SMSF that’s sitting around three or four members.”

Mr Jackson said to always keep in mind if the SMSF has planned for incapacity and if the plan matches up with what is also planned for death benefits.

“Have we made sure we’re allowing that person to get in control if that’s really what we want to happen?” he said.

“Think about what are the consequences of the death benefit payments, have we got that correct, have we got the right people in the right positions and is the money actually going to get to where we want it to go.

“If we don’t take that integrated approach realistically, all that’s going to happen is someone’s going to be disappointed, they’re going to come and visit the many superannuation lawyers around the place and they’re going to fight about it.

“We are seeing more and more of them and disputes have gone from being very discreet little issues about something like binding nominations to ‘once we start fighting we might as well throw everything in’ and see if we can actually take control of the fund and achieve the outcome we want.”