Succession planning checklist

With the recent release of the Australian Taxation Office's controversial draft ruling regarding auto-reversionary pensions (TR 2011/D3), the awareness of effective succession planning has been highlighted. Financial advisers should take this as an opportunity to review their current succession planning practices. 

Isolated query

Financial advisers are frequently asked to assist with self-managed super fund (SMSF) succession planning assignments for their clients. More often than not, they will be approached by advisers with the query, "I'd like to update Mr X's pensions to make them reversionary", or "Mrs Y needs a Binding Death Benefit Nomination (BDBN) drafted".

However, in order to appropriately plan for Mr X and Mrs Y's SMSF succession upon their death or loss of capacity, there are a number of things that must be considered.  

Succession planning considerations

As a first port of call, the SMSF's deed will need to allow for other supporting documentation to be put into place. The SMSF members should then consider having a sole purpose corporate trustee appointed, with mechanisms in the company constitution that allow for the smooth succession of directors. 

Thereafter, things such as wills, enduring powers of attorney, pension documentation and BDBNs should all be reviewed and considered. They should first be checked to ensure that they are consistent with one another and are in accordance with their clients' goals.

For example, a BDBN may state that a member's superannuation benefits are to be paid to their legal personal representative.

However, that member's will may not take their superannuation benefits into account.

Comprehensive succession planning

When an financial adviser's client asks them to start a pension or BDBN, the adviser should be thinking about a range of other aspects. The reversionary nomination is now an important decision and has an impact on clients' estate planning - it affects every pension.

Financial advisers such as accountants, financial planners and lawyers should hopefully be able to formulate strategies that can be applied across all of their clients. Such a strategy should not necessarily restrict clients' succession planning choices, but rather ensure that:

• The financial adviser is demonstrating to the client that they have the client's best interests at heart by thinking outside the square; and 
• The client will have a 'rock solid' SMSF succession planning position at the completion of the engagement. 

Checklist for financial advisers

Conclusion

Financial advisers should urgently review all clients with pensions following the release of TR 2011/D3 to see if they are exposed by not having an auto-reversionary pension.

We encourage financial advisers to think more broadly about a client's SMSF succession planning. Typically, a conversion to an auto-reversionary pension will not address all of that client's succession planning needs. By utilising the material outlined above, advisers should be able to design a comprehensive review that will benefit all their clients' interests.  

Daniel Butler is the director and Nathan Papson is a lawyer at DBA Lawyers.