North Sydney Commercial Lawyers

Superannuation and estate planning | Lawyers SydneyPrint This Post

The concept of using your self-managed superannuation fund as part of your estate plan is not new. But many advisors are not familiar with what can be done. Leigh Adams Business Lawyers weave clients’ superannuation arrangements into their estate planning needs as required to assist in tax minimization, asset protection and the needs and wants of our clients.

Take Harry for example, who came to see us with this set up and asked us what he could do about it:

The Harry Met Sally super fund

Harry’s accountant had recommended that Harry and Sally, a long trusted business associate of Harry, set up a self-managed super fund. The fund had used section 67A of the Superannuation Industry (Supervision) Act 1993 and had borrowed money to acquire business real property. It was bought for a cheap price, but the location was very good and now it is worth $4,000,000.

Harry has entered into a binding death benefit nomination by which his 50% membership interest in the Harry Met Sally super fund is to be transferred to Harry’s legal personal representative (that is, Harry’s estate) upon his death. It will be captured by Harry’s testamentary trust which forms part of his will.

Harry’s testamentary trust

The beneficiaries of Harry’s testamentary trust are Harriet (Harry’s domestic partner) and Willie (their two year old son) and Willie’s children (if and when he ever has any). Harriet is the trustee of his testamentary trust and if she is unable or unwilling to perform those duties, then Harry’s brother John is to be the trustee.

The testamentary trust is to vest (that is, terminate) when Willie turns 25 years.

The Acme super fund

Harry has another self-managed super fund of which Acme Pty Ltd is its corporate trustee. Harry is the sole director, secretary and shareholder of Acme Pty Ltd. Harry’s will stipulates that all Harry’s shares in Acme Pty Limited are to go to Harriet. This would leave Harriet in control of Acme Pty Limited and therefore she will be in control of the board of directors of Acme Pty Limited and therefore she will control the Acme super fund. Harriet will be the person to decide who (of Harriet or Willie or Harry’s estate / testamentary trust) will get Harry’s membership interest. If it is to be Harriet or Willie, then Harriet will be the person to decide whether they are to get a pension or receive the money as a lump sum. 

The Harry Family Trust

Acme Pty Ltd was also the trustee of Harry’s Family Trust. Confused? So were we.

The Employer super fund

Finally, Harry’s employer contributed mandatory superannuation to a nominated public fund we will call Public Super. Public Super held a $1.6m life insurance policy over Harry’s life.

Harry had signed a binding death benefit nomination by which the proceeds of his membership interest in Public Super were to be transferred to his testamentary trust upon his death.

Harry’s problem

Harry is not happy with the above arrangements. His relationship with Harriet is deteriorating and he wants to take the pre-emptive step of entering into a binding financial arrangement (BFA) with her. She has just inherited a large sum of money and the arrangement is that she is to get nothing from his estate.

She is initially uncomfortable about the idea but she eventually sees a family lawyer and signs the BFA. Harry does not want her to get anything more than what the BFA stipulates. How should Harry change his personal affairs?

The changes 

The Harry Met Sally super fund

The proceeds of this superannuation fund are still to go to his testamentary trust. 

Harry’s testamentary trust

This is the big change. Only Willie is the beneficiary of the testamentary trust. And Harriet is no longer the trustee. Harry’s brother John is the trustee. Harry trusts John but to be on the safe side, he appoints his cousin Hillary to be the appointor of the testamentary trust. Hillary is very fond of young Willie and sees him almost every week.

Harry had spoken with Leigh Adams, our North Sydney estate planning lawyer and Leigh explained that the appointor has the power to sack the trustee and appoint another if the trustee is not doing their job properly.

When would you sack a trustee? When they are not distributing the income or capital according to the trust instrument – in this case the testamentary trust. That can include cases where they are taking the money for themselves, or giving it to non-beneficiaries or other improper behaviour.

The Acme super fund

Harry leaves his shares in Acme Pty Limited to his cousin Hillary. As Hillary will thereby control the corporate trustee Acme Pty Limited, Hillary can now determine what is to happen to Harry’s membership interest in the Acme super fund when Harry dies.

We also informed Harry about what is to happen if he is no longer able to look after Acme super. Harry appointed Hillary as his attorney under an enduring power of attorney. He changed the constitution of Acme Pty Limited to ensure that Hillary would become the director and secretary upon Harry’s death or total and permanent disability. Hillary signed a consent for these appointments and Harry kept the consent with the Acme super fund papers.

He also made sure that his enduring power of attorney gave Hillary the specific power to become a director of Acme Pty Ltd, consistent with section 17A(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993.

These changes ensure that Hillary will take over control of the Acme super fund upon Harry’s death or total and permanent disability.

We informed Harry that Hillary should ensure that the membership interest of Harry go to his legal personal representative (that is, his estate) as it will be captured by his testamentary trust. That way, tax benefits will be available for Willie and John (as trustee of Harry’s testamentary trust) can manage it for Willie until the trust vests.

We told Harry that in order to ensure that his wishes were fulfilled, he should make a binding death benefit nomination to “John (stating his full name) in his capacity as legal personal representative of ” Harry’s estate. This way, the membership interest of Harry in the Acme super fund must go to Harry’s estate, and not be caught up in John’s personal assets, like what happened to their bother Jimmy.

Poor Jimmy. His beneficiaries spent $100,000 in legal fees just because no-one could work out what his own binding death benefit nomination really meant.

The Harry Family Trust

Harriet was no longer a beneficiary of the Harry Family Trust. Harry made the same type of changes to his family trust, as he had done to his testamentary trust. Because it was a discretionary trust, we were able to make the change without any stamp duty problems.

In addition, and just as importantly, our advice was to get a separate corporate trustee for the Harry Family Trust which Harry agreed to do. Leigh Adams Estate Planning Lawyers noticed that the trust deed would need to be amended before the new trustee could be appointed otherwise full stamp duty would be paid on the appointment of the new trustee.

In addition we checked and confirmed that the power of amendment in the trust deed was wide enough to enable this proposed amendment to be made.

The Employer Super Fund

This was unchanged.

Harry was delighted with the advice. He is sleeping well.

If you want a lawyer who can help you with your superannuation and estate planning concerns, then call Leigh Adams Estate Planning Lawyers in North Sydney immediately on 02 996340022 or emailleigh@lalawyers.com.au We get you there.