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Have You Considered What You Will Do If An Unexpected Event Occurs?

Your SMSF is a long-term plan. Much can happen during this time including illness, incapacity or death of a member.

It is best practice to have contingency plans in place to deal with unexpected events. For example, if a fund member dies, leaving you as the sole member, your fund may be in breach of the SIS Act.

Outlined below are some issues to consider as trustees if an unexpected event occurs.

Death

The rules of your SMSF, as set out in your trust deed and related documents, determine how the trustee structure is to be reconstructed on the death of a member as well as how death benefits are to be handled by you and your fund.

A lot of careful consideration needs to be given to understanding the member’s wishes to ensure that your fund’s trust deed and broader governing rules are drafted appropriately to achieve these requirements. You may need to think carefully about who receives your superannuation on death to maximise its benefit for your beneficiaries.

Other considerations are a binding death benefit nomination to nominate who will receive your superannuation on your death.

You may need to also consider Individual Trustees versus a Corporate Trustee.  If the member of an SMSF with individual trustees passes, the names on the funds’ ownership documents must also change. This can be costly and time-consuming and your fund may be in breach of the SIS Act and Regulations.
A corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a significant succession-planning issue for an SMSF as well as for the estate-planning of its members.

Diminished capacity

Consider the consequences if you become unable to act as trustee (e.g., due to mental incapacity). You can appoint an enduring power of attorney to act in your place as trustee, if required. This is someone who can be trusted to handle your financial affairs and can be appointed as trustee of the SMSF.

Separating couple

Family law contains a number of options for superannuation to be split between a couple who separate or divorce. Your superannuation is treated separately to your other property, so specialist advice may be needed.

Reviewing your insurance

SMSF trustees should regularly review insurance as part of preparing your investment strategy. This includes considering whether or not insurance cover should be held for each SMSF member. Your insurance cover may be essential if an unexpected event occurs.

In some circumstances, you may already be holding insurance through membership of a large super fund. This policy may exist due to an employment arrangement and may be more cost-effective than an equivalent valued policy that you could hold within an SMSF. However, not all insurance policies are the same, so seeking advice will help you to understand your needs.

How can we help?

If you need assistance with planning for an unexpected event or reviewing your current strategies, please call Garry or Carmine to book an appointment on 07 3245 9966.

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meritwealth
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4Front Accountants Pty Ltd (ASIC No. 33911) ABN 46 166 598 876 is a Corporate Authorised
Representative of Merit Wealth Pty Ltd ABN 89 125 557 002, Australian Financial Services Licence Number 409361.
Carmine Decorso (ASIC No.148577) is a Limited Authorised Representative of Merit Wealth Pty Ltd
ABN 89 125 557 002, Australian Financial Services Licence Number 409361.
Garry Johnston (ASIC No.1270713) is a Limited Authorised Representative of Merit Wealth Pty Ltd
ABN 89 125 557 002, Australian Financial Services Licence Number 409361.
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