A self-managed super fund (SMSF) Will is better than relying on "off-the-shelf" binding nominations for super death benefits in the case of blended families, according to two specialist advisers from the Self-Managed Super Fund Professionals’ Association (SPAA).
Addressing Money Management’s SMSF Essentials 2012 forum, Glenister and Co.’s Ian Glenister and Hill Legal’s Chris Hill agreed binding nominations for superannuation death benefits often failed in the case of blended families, and many financial advisers were unaware of clients’ SMSF rules governing nominations.
The Superannuation Complaints Tribunal’s (SCT) December 2011 quarterly review found complaints regarding death benefits made up 33.3 per cent of complaints overall, slightly behind disability complaints which topped the list at 36.7 per cent.
They concurred that an SMSF Will, which refers to an ancillary deed outlining terms and conditions for how death benefits are paid upon the members’ death, could overcome conflicts that arise between the surviving spouse and their stepchildren.
"An SMSF will specifically can make provision for the payment of specific items or specific assets out of the fund to specific players," Glenister said.
He said he applied the SMSF Will to his and clients’ SMSFs and it complied with superannuation legislation, tax regulations and trust law – but he thought the "legislator has forgotten about blended families."
"We certainly think it’s a very viable strategy that will pass and tick all the legal and superannuation boxes, but there needs to be certain safety nets in place to make sure it works," he said.
Hill said most of his clients came from blended families and needed a strategy to overcome conflicts and protect assets from depletion through division and taxes.
They said they saw no reason why a sub-trust could not be created stipulating that a conditional pension be paid to a surviving spouse from within the SMSF, as long as it complied with SIS rules.
"I think most clients…want to look after their spouse, that’s the key priority, but they also have a conflicting interest to look after the children," Hill said.
"This way, it provides a solution to that dilemma and it keeps key assets in the fund in this concessionary tax environment for as long as possible."
They said financial planners would be faced with an increasing number of blended families. There were risks in doing nothing despite the need for other safety nets, such as mutual Wills and the appointment of a ‘gatekeeper’ replacement trustee, to ensure the wishes of the member are upheld.
Hill said Future of Financial Advice reforms would open a "can of worms" regarding duty of care, and financial planners would be expected to partner with specialist advisers to give specialist estate planning to blended families.
"It’s another way of adding value to your clients as part of your service offering," Hill said.
"Rather than sit back and be frightened to do something, let’s have a crack at this and see if it works and see if it works properly," Glenister said.
