Top 5 Mistakes To Avoid In SMSF
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Self Managed Superannuation Funds are a great source of investment for people if
appropriately managed. It is essential to form an SMSF deed carefully to avoid having
disputes between family about the same. Planning goes a long way when it comes to
super funds. No matter the type of SMSF, planning what happens to the money in the
event of a death is vital. It is crucial to avoid mistakes in estate planning. Fixing errors in
the aftermath of the distribution is nearly impossible. Individuals may have family
members reacting different or unfair if the death benefits of an SMSF is not pre-decided.
To maintain fairness, one has to set up the deed taking all considerations into view. Are
you thinking of an SMSF property investment? Wait before you unknowingly cause
yourself needless trouble. The top five mistakes one can avoid in SMSF estate planning to
ensure the best results.
Faulty Or Incomplete Documentation
Once decided and executed, a death benefit nomination stays binding. It becomes
difficult for trustees to make changes as a binding nomination supersedes trustee
judgement. A nomination has to be valid and well-planned to ensure hassle-free decisions
later. It can be deemed invalid in a situation where trust deeds are not routinely
upgraded. It is necessary to review it every five years to make sure that it is relevant and
updated. The wording is the key in the deed, and so thorough brainstorming and cautious
finalisation are fundamental to avoid faults or incomplete documentation.
Wrong Nomination
A death benefit nomination can be binding and non-binding. If you choose a non-binding
nomination, then the chosen trustee is not obliged to your conditions. In this case, you
have no assurance that the money is spent as per your wishes. In case of a binding
nomination, it is a guarantee that the selected trustee will honour your discretion. The
biggest mistake of all could be nominating the wrong person as a trustee. Often, an error
in judgement can lead to such a conclusion. In such a case, a nomination may be deemed
invalid entirely or partially.
Misguided Tax Planning
Usually, there is no tax applicable on a death benefit. However, there are conditions
applied. If an 18 year or older child who is financially independent is declared beneficiary,
taxes are applicable. If the Legal Personal Representative and will help pay some of the
death benefits to a non-dependent, taxes are mandatory.
Unsettled Divorce Issue
Since potential beneficiaries are generally your spouse, financially dependent children or
anyone financially dependent on you. It is necessary to evaluate and finalise your
decision. In some instances, the death benefit goes to the deceased's spouse, who
already had a separation. If you haven't finalised the divorce, the spouse can still claim all
the benefits of your SMSF. Unless an ex-partner is not financially dependent on you, it
would be better to get a divorce. This will officially tick them off the list of potential
superannuation fund beneficiary.
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