Do the people named in your estate plan understand how your SMSF works?

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A self-managed super fund can hold some of a family’s most important assets.

For farming families and business owners, this may include farmland, business premises, commercial property or other assets built up over many years.

These assets often form part of the family’s long-term plans. However, issues can arise when the people named in an estate plan do not understand how the SMSF operates, who controls it or what responsibilities may fall to them.

It is worth asking:

Do the people involved in your estate plan understand how your SMSF works?

How your SMSF fits into your estate plan

An SMSF is not always dealt with in the same way as personal assets covered by a Will.

The fund has its own trust deed, trustee structure and rules. What happens when a member dies may also depend on documents such as death benefit nominations and the fund’s governing rules.

This means a Will may not be enough on its own to determine what happens to assets held within the fund.

Where an SMSF holds farmland, business premises or other significant family assets, a lack of understanding can create confusion at an already difficult time.

Smith Shearer Director Gavin Smith says this is why SMSFs need to be considered as part of the wider estate-planning conversation.

“Where an SMSF holds farmland, business premises or other important family assets, it is worth making sure the next generation understands how the fund works and how it fits into the wider estate plan.” 

Helping the next generation understand

Some families are beginning these conversations with their adult children earlier.

This does not mean adding a family member to the fund or changing control straight away. It gives the next generation time to understand what the fund holds, why it was established and what responsibilities may need to be taken on in the future.

Useful topics may include who controls the fund, where important documents are stored and which advisers understand the family’s arrangements.

“These conversations do not mean changes need to be made straight away. They are about making sure the arrangements are clear, properly documented and understood before the family is faced with making decisions under pressure,” Gavin says.

Before making any changes

Adding an adult child or another family member to an SMSF is not always necessary or appropriate.

Changes to a fund’s membership or trustee structure can have legal, tax, superannuation and estate-planning implications. They should only be made after receiving advice based on the family’s circumstances.

The first step is not necessarily changing anything. It is checking whether the current arrangements are understood, properly documented and consistent with the wider estate plan.

Smith Shearer can assist with the relevant tax and accounting considerations and work alongside licensed financial and legal advisers where required.

Please note: This is general information only and is not financial product, legal or SMSF advice.