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The importance of succession planning for your SMSF


In the world of self-managed superannuation funds (SMSFs), the trustee holds immense power. They determine how much money can be contributed, who can become a member, where investments go, how and when payouts occur, and even who receives the remaining assets when you pass away. That's why, by law, you are typically required to be a trustee or director of your SMSF, unless there are specific exceptions. In essence, you need to be actively involved in managing your superannuation.


However, there are situations where being a trustee or director may not be feasible. This could be due to legal incapacity, bankruptcy, or residing outside Australia. So, how can you ensure your SMSF remains in good hands when you can't actively manage it? Here are some essential strategies:


1. Establish a Valid Will: To start, you must have a legally valid Will that designates your legal personal representative or executor. This person will ensure that your superannuation is handled according to your wishes after your passing. It's crucial to remember that your superannuation may not automatically become a part of your estate. Failing to make proper arrangements could result in the trustee of your fund making decisions that don't align with your preferences. Additionally, your SMSF Deed should immediately acknowledge the authority of your legal personal representative, rather than waiting for probate.


2. Create a Binding Death Benefit Nomination: It's also essential to have a valid death benefit nomination in place. This document informs the trustee of your fund about how you want your super balance to be distributed – whether as a pension to your spouse, a lump sum to your children, or to your estate. You can choose between binding and non-binding nominations, depending on your unique circumstances.


3. Appoint an Enduring Attorney: Appointing a general and enduring power of attorney is a critical step. This person will act on your behalf when you are unable to do so, such as when you are overseas or mentally incapacitated. Your SMSF Deed should recognize the authority of your attorney and their right to act on your behalf. The power of attorney document should align with your SMSF.


It's crucial to appoint an enduring attorney as early as possible. If you lose capacity without having one in place, even if your SMSF Deed addresses this issue, no one will be able to manage and safeguard your superannuation. In such cases, your benefits may need to be transferred to a public offer fund or disbursed, potentially causing adverse tax consequences and disrupting your retirement plans.


If your SMSF has a company trustee, the situation becomes more complex. If you haven't appointed an enduring attorney, other shareholders will continue to control the company and may not act in accordance with your wishes. If you are the sole member of the fund and haven't appointed an enduring attorney, the situation gets even trickier. You need to prepare adequately in advance, appoint an enduring attorney, and ensure your SMSF Deed acknowledges how they will act.


Appointing an enduring attorney involves specific formalities and requirements to safeguard your super interests. Additionally, your SMSF Deed (or constitution for a company trustee) must properly acknowledge the role and rights of your enduring attorney. By following these steps, you can help ensure that your SMSF remains in good hands, even when you can't actively manage it.

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