|Summary: Self-managed fund trustees have specific obligations in terms of investing, but the path is not as clear when it comes to planning for either death or disability. Ensuring your fund accountant is familiar with your circumstances is an important first step.|
|Key take-out: Establishing a corporate trustee instead of having individual trustees can simplify the management process if one of two trustees dies or becomes unable to perform their duties.|
|Key beneficiaries: SMSF trustees. Category: Superannuation.|
Last week I saw underlined how important accounting advice is going to be both in the next few months and longer term, first to adjust to any superannuation taxes, and second for self-managed funds to handle the death or disablement of trustees.
Firstly, former ACTU boss Bill Kelty, one of the architects of the Australian superannuation system, has warned that the Federal Labor government will lose legitimacy if it follows through on rumours to raise taxes on superannuation. Kelty vowed to fight any effort to increase super taxes and said any such move would breach voter trust and would likely eliminate any hope Labor has of being re-elected in the September federal election.
Eureka! Australia is lucky to have Bill Kelty, because the government may listen to him. But Kelty would not have made such a statement if he had not been tipped off that the Government was well down the track in imposing an extra tax on superannuation.
It’s very hard to take action in your own fund without knowing what the Government is doing, and when the budget comes out in May there will be time to make adjustments to contributions etc prior to June 30.
But the Kelty statement means that you should put your accountant on alert.
My second alert came from a very sad event.
I was shocked to read that an old friend of mine, Graeme McMahon, is dying of pancreatic cancer. The sporting pages of the Melbourne’s Herald Sun were full of the story. Graeme McMahon is a former boss of Ansett and was president of the Essendon Football club during the glory years (1997 to 2003).
The interview had only a small reference to how his wife will manage the family finances when he passes on, but it triggered an alert.
We are all perfectly familiar with the need for wills but are less familiar with what we need to do with our self-managed superannuation fund.
Like most people I have a self-managed super fund where myself and my wife are the trustees, and we each have an instruction that if the other one dies or becomes incapacitated then the other goes and see our accountant who is familiar with all the issues. The accountancy profession has done a wonderful job in setting up low-cost self-managed funds, which they audit each year, and are therefore are up to date with what is happening.
In many ways your accountant now performs many of the tasks that were formally undertaken by trustee companies. Trustee companies can still be very important in complex families (particularly if there is a large business), but a number of them have tried to centralise their activities in one city and that means they are not much good for other parts of the country. Trustee companies must operate on a person-to-person basis. The McMahon revelation alerted me that we all need to look at just how our self- managed fund will operate on the death or incapacitation of a trustee or both trustees.
Doug Turek wrote a fascinating account of some of the actions you need to take in Eureka Report on December 5 (Tackling investment dementia head-on). If you haven’t read that piece it is well worth going back and having a look, because all the alternatives are set out.
I think that what is important is that whatever you do to cater for death or disability, it must be simple.
We will be looking at perhaps using a corporate trustee instead of individuals because it is lot easier to replace directors of a trustee than it is individuals. But, very clearly, if you are incapacitated, a power of attorney can be a really useful exercise to smooth the transfer and it also makes sense to make sure your trust deed is set up in such a way that it facilitates this.
My own view is that there are no simple straightforward solutions that fit everybody. Almost every family situation is different.
So I think it is worth going back to the accountant with whom you are dealing with on a regular basis and ask him or her to make a recommendation to you as to how you should handle the death of one partner, the death of both, or the incapacity of one or both partners.
Self-managed funds provide half of the pensions that are paid out of superannuation. Self-managed fund trustees actually think about superannuation for what it was intended to do, that is, to provide income in retirement.
Members of industry funds or other institutional funds tend to see their superannuation as a lump sum payment to satisfy debts, travel etc. And so, because self-managed funds are being used to provide income, it’s very important that at a time of stress what needs to be done to continue to provide that income is well set out, so the surviving spouse or beneficiaries of the estate know what to do and can do it.
I am a believer in simple arrangements, even though they may not be the most tax effective. I have seen so many people establish complex trusts and mechanisms that go pear shaped because a relationship breaks down or some unexpected event takes place.
It is possible that politicians may seek to impose death duties or superannuation taxes or other nasties. If, and when, that happens it may be necessary to do some special planning, but for ordinary self-managed funds the simpler the better.
Of course, where you are dealing with a family business, you face a much more difficult problem as to how to handle the children inside and outside the business. The best example of any pass-on to the next generation has been the Pratt family, where the next generation have basically taken the various parts of the business under the watchful eye of the matriarch Jeanne Pratt. But that is rare.