ATO ruling triggers succession issues

While the Australian Taxation Office's (ATO's) recent draft ruling regarding auto-reversionary pensions has already highlighted the importance of effective succession planning within self-managed super funds (SMSFs), it is also an opportunity for financial advisers to take stock of their current succession planning practices, according to DBA Lawyers director Daniel Butler.

"Financial advisers are frequently asked to assist with SMSF succession planning assignments for their clients," he said.

"And 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 BDBN (Binding Death Benefits Nomination) drafted'.

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

Butler said that as a first port of call, the SMSF's deed needed 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," added Butler.

"Thereafter, things such as wills, enduring powers of attorney, pension documentation and BDBNs should all be reviewed and considered.

"They need to be checked to ensure that they are consistent with one another and are in accordance with their clients' goals," he continued.

"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."

According to Butler, when a financial  adviser's client asks them to start a pension or BDBN, the financial 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," he said. "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 that they have the client's best interests at heart by thinking outside the square - and that the client will have a rock-solid SMSF succession planning position at the completion of the engagement."