Pension documentation should not be forgotten in SMSF planning: expert
Correct pension documentation is equally important as death benefit nomination in an SMSF, says a financial expert.
Chris Reed, director of Business Concepts Group, said consistent and updated documentation is imperative throughout the lifecycle of an SMSF, and that includes ensuring that pension and death benefit nominations align.
“Superannuation doesn’t automatically form part of your will so pension documentation mustn’t conflict with any other documentation in an SMSF,” he said.
“We’re often talking large amounts of money in the superannuation environment, not just hundreds of thousands of dollars but millions of dollars floating around, and it forms a significant part of the estate, so it’s important that everything, including pension nominations, are well documented so it flows smoothly and does not trigger a conflict.”
Reed said many of the legal disputes concerning SMSFs involve death benefits and the court's focus in these instances is the documentation of the fund.
“We start with the trust deed of the fund, not just the current trust deed being up-to-date and executed correctly, but the whole chain of deeds back from day one when the fund was first set up,” he said.
He said courts will review what has occurred throughout the life of the SMSF to ensure that it has been executed correctly and that any changes have been instituted properly.
“The deed is the number one priority. All the other documentation then starts to swing around that including pension documents, and death benefit nominations,” Reed said.
“A lot of legal cases are disputes over money and a lot of time it comes down to the fact that one of the parties has found a piece of documentation that has not been executed properly.”
Reed said for this reason it is important that all documentation in the fund is aligned and follows the right chain of order, including pension documentation.
“If we expand out from the deed, the duties are critical for SMSFs, but then we move on to pension documentation and death benefit nominations. You have to make sure it has all been executed properly and is in line with the deed,” he added.
“You can even expand out to the constitution of a corporate trustee company to see what it says in the event of death or incapacity of a member or a director. And if we keep expanding out, we start to get into their powers of attorney, replacement of directors, individual wills.”
He warned that if a member’s will is not consistent with their pension nominations, it can be open to contention and members must understand that superannuation does not automatically form part of a will.
“There are often clauses in a fund that nominate where a member may want their superannuation directed but it still has to be in line with the other documentation of the fund,” Reed said.
“And it doesn’t necessarily have to be on the death of the member, it can be just a loss of capacity which can trigger these disputes so it’s vital that estate planning and all documentation covers any potential scenarios.”
