Death benefits still a challenge for sector: specialist
Death benefits and how to plan for them properly will be an area of focus in the SMSF sector over the coming 12 months, says an industry adviser.
Scott Hay-Bartlem, partner at Cooper Grace Ward Lawyers and chair of the SMSF Association, told SMSF Adviser that not enough work has been put into the death benefit space and it poses a potential challenge to the sector.
“A lot is happening in the death benefit world. I think we're seeing an increasing trend to apply normal trust law principles to SMSF trustees, which traditionally haven't been provided or even thought about, particularly in the death benefit space,” he said.
“So, it’s important to be very conscious of getting everything lined up properly and being aware of potential challenges. Not enough work is often put into death benefits in SMSFs and we can often pick holes in what's been done, and that is going to continue to be an issue.”
Mr Hay-Bartlem said the Williams v Williams case early in 2023, highlights the importance of good quality documents, especially regarding BDBNs.
The case found that a BDBN must be given to all trustees to be valid and in this particular instance, it was given to only one trustee to sign off.
In conjunction, the ruling in Hill v Zuda [2022] HCA 21 revealed another important and strategic implication concerning BDBNs in that if a member is concerned about giving a BDBN to a trustee, they should consider restructuring their super.
Mr Hay-Bartlem said there is a growing awareness of the value of assets held in super and its capacity as a planning tool to ensure money left after death goes to the people intended.
“But that requires proper planning and execution,” he said.
“A lot of people don't think about this as part of their overall estate plan, so members of an SMSF need to make sure that they're doing everything together. Often when we're doing an estate plan with a client with money in an SMSF, we find they've done binding death benefit nominations separately.”
He added that one of the challenges for the SMSF industry as a whole is the desire for people to run their fund and their reluctance to get advice.
“That is where the Quality of Advice Review now is trying to step up and make super advice more accessible,” he said.
“Each member's solution is different from the other’s. It is such a personal thing. Everyone needs to take responsibility for being aware of what super they've got, and how it works, and then they have to pull it together. If you've got a good administrator, accountant and adviser, they will help you do all that.”
He continued that the most effective estate plans involve the accountant and the financial adviser working collaboratively to ensure the client gets the result they want and one of the challenges in doing estates, succession planning and wills is to get people to think about how they all work together.
“They might be aware of the rules for super death benefits, but they also need to have some planning, especially death benefit planning, because who knows who will end up making the decision [about assets] after someone passes?”
