Successful estate planning can be done in 11 easy steps

“When it comes to succession planning it's often a poorly understood set of rules and people just want to make sure that when they die, the money goes to the right people,” Mr Figot said.

“A common theme in SMSF succession planning cases is the moment there is a skerrick of uncertainty, a trustee who is on the front foot goes to court.”

However, by following the 11 steps below, there is a less likely chance of litigation.

Step 1

Identifying the rules that govern the fund.

“There are a lot of new rules about identifying these,” he said. “But remember that the deed matters, the date establishing the fund matters and all variations matter, as do all changes or trustee documents.”

Mr Figot said if any of these documents are missing, it creates risk and uncertainty. He added that documents need to be signed by an independent witness as that will satisfy execution Australia-wide.

Step 2

Have a sole-purpose corporate trustee or a sole-purpose contract.

“If an SMSF does not have one already, I would strongly suggest appointing a sole-purpose corporate trustee,” he said.

Step 3

Ensure that shareholding distributes voting power appropriately.

“This is very important, I cannot overstate the importance of this,” Mr Figot said.

“A structure that is often appropriate for a two-member SMSF is one where each member personally owns half the shares, and if either of the members have children from a previous relationship, each member nominates the executors of their will as successor directors.”

Step 4

Ensure that there is an enduring power of attorney in place for each member.

“We don't just think about death regarding an EPOA. We also think about the loss of capacity and this is the document that comes into play when you've lost capacity but before death,” Mr Figot said.

Step 5

Identify who will run the SMSF when a member loses capacity.

“In other words, who will be the trustee(s) or directors of the SMSF if a member loses capacity,” Mr Figot said.

“If the member is unhappy with who will be taking over the SMSF, then the structure should be altered.”

Step 6

Ensure a will has been made.

“Wills have changed over the past few years and you may be wondering why you need to make one, but superannuation benefits should be kept separate from other assets in the estate,” he said.

Step 7

Identify who will be running the SMSF following the member’s death.

“This is generally determined by the specific SMSF’s governing rules and, if applicable, by the constitution of the trustee company,” Mr Figot said.

“The SMSF must comply with the usual trustee-member rules no later than six months after the date the deceased’s benefits become payable in order to remain an SMSF.”

Step 8

Identify what the member wishes to happen to their benefits upon death.

“There are a number of options including that the decision can be left to the discretion of the people running the SMSF upon death, or a lump sum to the executors can be dealt with in accordance with the will,” Mr Figot said.

“It can also be paid as a pension to a dependant, or as a non-commutable pension to a spouse.”

Step 9

Calculate the approximate tax payable position.

“People do focus on the tax implications and this has been an area which has been changing,” he said.

“But importantly, tax should not determine who receives what benefits. It is better for the right people to receive money and pay some tax than for the wrong people to receive it and pay no tax.”

Step 10

Determine to what extent the member wants to lock in their wishes in step eight.

“The member can ensure they trust whoever will be running the SMSF or make a BDBN to whom and how the benefits will be paid,” Mr Figot said.

“They can also vary the fund’s governing rules to hardwire in the provisions.”

Step 11

Engage a lawyer to advise upon and draw up and draft the relevant documents.

“I think it's a bit of a downer note to end on, but I think there's important things to be aware of in that regard,” he said.

“Accountants and financial planners can add great value in collecting instructions and making structural suggestions, but the conservative view is that this can constitute the provision of legal services, for which there are harsh punishments.”