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SMSF succession planning part 1 – getting started

 

Part 1 examines the key characteristics of a sound SMSF succession plan including planning for control of the fund to pass into trusted hands in the event of a member’s death or loss of capacity.

 

 

For many Australians, superannuation is a significant asset especially if an SMSF is involved. However, despite this, many do not plan ahead for what happens to their superannuation upon their loss of capacity or death.

We recommend that every SMSF member develops a succession plan, consistent with their other estate and succession plans, to ensure there is a well-considered and documented process in place to govern succession to control of their fund.

Failing to plan ahead can result in considerable uncertainty arising in the future with respect to the control of an SMSF and the ultimate fate of the member’s superannuation benefits. For instance, inadequate attention to succession planning could result in superannuation death benefits being paid otherwise than intended, and unnecessary costs and stresses arising for the family.

Key characteristics of good succession planning

SMSF succession planning broadly aims to accomplish the following outcomes:

  • the right people gain control of the SMSF to ensure that superannuation benefits are paid as intended;
  • the right people receive the intended proportion of SMSF money and assets; and
  • outcomes are provided in a timely and legally effective manner, with minimal uncertainty and in as tax efficient manner as possible.

SMSFs are subject to some complex rules and are strictly regulated by the ATO with sizeable penalties that can be imposed for most breaches. Thus, expert advice should be considered when undertaking SMSF succession planning, especially as not all SMSFs will have governing rules that cover the right succession strategies.

Accordingly, there is no easy ‘one size fits all solution’ for SMSF succession. However, all plans should, at least:

  • determine the person(s) who will occupy the office of trustee/director upon loss of capacity or death;
  • ensure that the SMSF can continue to meet the definition of an SMSF under s 17A of the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA);
  • determine what each member’s wishes are for their superannuation benefits;
  • determine to what extent each member’s wishes should be ‘locked in’ through the use of an automatically reversionary pension and/or a BDBN; and
  • determine the tax profile of anticipated benefits payments.

Succession on loss of capacity — the role of attorneys

With the passage of time, there is a significant risk that some SMSF members may lose the capacity to administer their own affairs. In the absence of prior planning, this could result in major uncertainty and risk arising in relation to control of the SMSF. Having an EPoA in place can help overcome this problem, as an EPoA appointment is ‘enduring’, enabling a trusted person (ie, the member’s attorney under an EPoA) to continue to run the SMSF as their legal personal representative (LPR) in the event of loss of capacity.

It is strongly recommended that every SMSF member implement an EPoA as a part of their personal SMSF succession plan. It would not be an exaggeration to say that being an SMSF member without having an EPoA is a significant risk exposure.

Naturally, given the important responsibilities placed on an attorney, a member must trust their attorney to do the right thing by them. Only a trusted person should be nominated, and insofar as the member retains capacity, the EPoA should be subject to ongoing review to ensure its ongoing appropriateness.

Consideration should also be given as to whether the scope of the appointment should be general in nature (ie, a general financial power) or limited to the SMSF or to the SMSF trustee. For example, if the member wishes to preclude their attorney from exercising certain rights in relation to their member entitlements or making or revoking their BDBN, this should be expressly covered in their EPoA.

It should be noted that having an EPoA in place does not generally give effect to an intended appointment of the attorney as an SMSF trustee (or director of a body corporate that is trustee). An EPoA merely permits the member’s attorney to occupy the office of trustee or director of the corporate trustee to help satisfy the trustee-member rules in s 17A of the SISA. Thus, the attorney must still be appointed at the trustee-level at the appropriate time.

The appointment mechanism which facilitates an attorney (or other LPR) to step into the role of trustee/director is contained must be contained in the SMSF deed and the company’s constitution. For example, in the context of a corporate trustee, in the absence of other appointment provisions in the constitution, generally a majority of the company’s shareholders must exercise their voting rights to appoint a director.

Succession on death — the role of the executor as LPR

The death of a member is the other key succession planning risk that needs to be carefully considered.

Section 17A(3) of the SISA provides an exception to the trustee–member rules where a member has died. The exception in s 17A(3) provides that a fund does not fail to satisfy the basic conditions of the trustee–member rules by reason only that:

(a) a member of the fund has died and the [LPR] of the member is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during the period:

(i) beginning when the member of the fund died; and

(ii) ending when death benefits commence to be payable in respect of the member of the fund.

This exception permits an LPR of a deceased member (eg, an executor of a deceased person’s estate) to be a trustee/director in place of a deceased member until the member’s death benefits commence to be payable.

However, this provision does not result in an LPR becoming a trustee/director. For example, for s 17A(3) to apply, an LPR must actually be appointed as either:

  • a director of the corporate trustee pursuant to the constitution of the company; or
  • an individual trustee pursuant to the governing rules of the fund.

This has been confirmed in numerous cases, including in Ioppolo v Conti [2013] WASC 389, Ioppolo v Conti [2015] WASCA 45 and implicitly in Wooster v Morris [2013] VSC 594. In Ioppolo v Conti [2013] WASC 389, Master Sanderson described the operation of s 17A(3) as follows ([20]):

…The mechanism of the section is tolerably clear. Section 17A(3) allows for the appointment of an executor as a trustee of the fund but does not in its terms require such an appointment. …

These cases broadly confirm that a deceased person’s LPR (ie, their executor) will not generally step into the role of an SMSF trustee/director automatically upon a member’s death. Broadly, it depends on the provisions of the SMSF deed and the company constitution (most SMSF deeds and constitutions do not have a mechanism for this to occur) and whether there are other legal documents in place to ensure this occurs.

The role of the Corporations Act 2001 (Cth) in respect of corporate trustees

Section 201F of the Corporations Act 2001 (Cth) empowers the personal representatives of a sole director and sole shareholder in a private company to appoint new directors for the company on the death or loss of mental capacity of the principal (ie, the sole director/shareholder).

Thus, if an SMSF was a sole member who is also the sole director/shareholder of the corporate trustee, s 201F can assist in relation to the member’s LPR exercising powers to take control of the SMSF trustee after their death (or loss of legal capacity).

However, it is important to understand the limitation of this provision. For instance, s 201F cannot assist where an SMSF member has died and SMSF trustee company has more than one director or shareholder, or where the shareholder is a person other than the sole director who has died.

Accordingly, relying on s 201F is not a sound strategy in many cases.

Successor directors

By ensuring that the fund’s corporate trustee has an appropriate company constitution that contains successor director provisions, it is possible to plan for smooth succession to the role of a director in advance while also overcoming limitations that apply in respect of:

  • appointing a new director via the usual rules in the corporate trustee’s constitution (eg, by majority shareholder vote); or
  • the limited flexibility in s 201F of the Corporations Act 2001 (Cth).

Making a successor director nomination allows a director (ie, the principal director making a nomination in accordance with an appropriately drafted constitution) to nominate a person to automatically step into their shoes immediately upon their loss of capacity, death or a specified event occurring.

The successor director strategy is designed to work in conjunction with a member’s overall estate and succession plan to enable an attorney appointed under an EPoA or an executor of a deceased member’s estate to be automatically appointed as a director without any further steps involved.

Naturally, a successor director strategy relies on the right paperwork being in place, including the right constitution and related successor director nomination form.

Conclusions

Forward planning supported by the right documents is required for smooth and effective SMSF succession planning.

Expert advice should be sought in relation to formulating and implementing an appropriate SMSF succession plan.

Stay tuned for Part 2 in this multi-part series on SMSF succession planning which will cover the role of binding death benefit nominations.

 

By William Fettes and Daniel Butler – DBA Lawyers
October 30 2024
smsfadviser.com

 

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Retirement Planning

Retiring on your own terms is not always easy to achieve, however it is evident that those who plan for retirement are more likely to do so. Results also show that obtaining professional help during the pre-retirement years further improves the probability of attaining your retirement objectives.

The earlier you start implementing a plan the better the outcomes.

During one’s working life there is always an income to make ends meet when raising children, paying off a mortgage, etc.

Retirement planning is about the lifestyle you will have after you stop work and receiving employment income.  Planning focuses on issues such as how much superannuation is enough, taking a super pension, claiming the Age Pension, making superannuation contributions while receiving a pension from a super fund, estate planning and looking after your family.

Planning properly is becoming even more important now we are expected to live longer.  This greater need means that professional help has never been more important.

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Building Wealth

Investing your hard earned savings can be a complex task.  There are many issues such as levels of risk, market timing, asset classes, and your own goals, objectives and preferences that need to be considered. It can often seem a daunting task. At Wybenga Financial we have the expertise to assist you in taking control of your finances and making sure you are generating the wealth you need both now and in the future.

The first step is to create a plan. At Wybenga Financial we take great care in getting to know our clients and their future goals and objectives. We combine our knowledge of your personal goals together with an analysis of your current situation, to create a detailed, personalised plan that will help you meet your objectives. This plan will become your road map which outlines how we are going to meet your goals, whilst aligning all investment decisions to your specific risk tolerance.

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The final and most important phase of the relationship with Wybenga Financial is the ongoing management of your wealth. This ensures you are sticking to your plan and that your portfolio is aligned to your needs and attitude toward risk. An ongoing relationship ensures that we know when your circumstances change and that these can be recognised and reflected in changes to your investment approach.

While we are reviewing your portfolio from the perspective of your personal goals and situation, we also take into account the wider economic landscape and changes to legislation. We continually review and analyse our preferred investments in a structured and objective way. The benefit to our clients is that we are unemotional. This can be significantly beneficial over the long term.

At Wybenga Financial we can provide the time and expertise that will help you invest intelligently and prudently.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Personal Insurance

Life insurance isn’t just a cost, though it often feels like it.  You buy peace-of-mind that should a serious issue effect you then the consequences won’t unduly affect your family.  Insurance provides you with the ability to manage the financial and emotional impact of some of the more drastic events, whether personally or in your small business.

Insurance can’t replace a loved one but it can help reduce the financial burden by providing the capital to ensure your family has choices.

Many Australians are underinsured and the consequences can be very serious for families should there be a death or serious injury. A yes to any of the following questions means you may have a need for insurance coverage:

  1. Do you have a mortgage?
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  3. Do you have any personal loans?
  4. Do you have any credit card debt?
  5. Do you have dependents?
  6. Would your financial position be affected if you were to suffer from an illness or injury?
  7. Do you want to have enough capital to look after your dependents if you were unable to care for them for an extended period of time or perhaps indefinitely?

We understand that it can be difficult determining the type and level of cover you might need, let alone choosing an insurer. We can assist by helping you determine your needs and recommend an insurer that is right for you.

At Wybenga Financial we know how to protect your wealth and will recommend solutions that best suit your needs. Contact us today to discuss how we can work together: (02) 9300 3000 or .

Superannuation

Superannuation is mandatory but taking an early and active interest in your retirement planning is critical to ensuring your benefits are maximised by the time you retire.  Many will have a superannuation scheme through employment but increasing numbers are starting their own Self-Managed Super Fund (SMSF).

For many, simply relying on employer contributions may not be enough to provide the lifestyle you desire at retirement. We can assist in building strategies to ensure your retirement goals are met and your required lifestyle is maintained throughout retirement.

It is always best to start saving and planning for your retirement as early as you can. 

At Wybenga Financial we know our job is to help you meet your retirement needs and we have the skills and experience to do this for you.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Self Managed Super Funds

Self-Managed Superannuation Funds (SMSFs) offer a good strategy option for many individuals, families and small business owners to build tax effective wealth and to protect assets over time. SMSFs are becoming popular for those who are ready to take control of their own super investments as they give you ultimate control and flexibility to manage your retirement benefits.

It must be noted though, that you will have increased responsibilities as a trustee of the fund. As a SMSF Trustee you need to keep up to date with all required regulations and keep up with the fast paced financial markets.

Wybenga Financial can work with you to understand your personal financial situation and decide whether a SMSF structure is appropriate for you. We will also make sure your assets are invested in the most effective way to maximise your retirement benefits.

Should you wish to consider establishing a SMSF then we can help with all aspects of the process from establishment to managing your compliance obligations.

Wybenga Financial would welcome the opportunity to discuss how we can help maximise your opportunities to grow your wealth through a Self Managed Superannuation Fund (SMSF).  Contact us today to discuss how we can work together: (02) 9300 3000 or .

Estate Planning

Your estate is made up of everything you own. This includes your home, property, furniture, car, personal possessions, business, investments, superannuation and bank accounts.

Having an estate plan is extremely important.  Having a will is just the first step in your estate plan. It is critical to consider what outcomes you would like for your estate and to ensure a plan is in place to achieve those outcomes, both including and beyond the terms of your will.

Wybenga Financial would welcome the opportunity to discuss how we can help ensure your estate is organised to ensure your plans are implemented as you wish.  Contact us today to discuss how we can work together: (02) 9300 3000 or .

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Loans and loan management are central to overall financial management.  Obtaining the the most appropriat loans for your needs is crucial and Wybenga Financial can help you with solutions that meet your short and long term needs.

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Property

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Strategic Planning

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Tess Uncle

B.Sc, M.Com, CA, DipFP

Tess has over 22-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Tess has turned her attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Tess’s mission is to bring the ethics and integrity of her Chartered Accounting background to the area of wealth management.

As a woman in a male dominated field, Tess is active in promoting gender equality in the industry through various programs and mentoring opportunities.

Using her depth of knowledge and experience in tax and accounting Tess is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2001 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2004 – Graduated Masters of Commerce from the University of New South Wales
  • 2005 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2007 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

Schedule a Meeting with Tess


Adam Roberts

B.Bus, B.Sc, CA, DipFP

Adam has over 18-years experience in Chartered Accounting Firms and in this time has had a broad range of experience in superannuation, taxation, business services, and financial strategy.

Over the last seven-years, Adam has turned his attention to Financial Planning, earning a Diploma of Financial Planning in 2015 and leading the newly established financial division of the Wybenga Group as a director of Wybenga Financial.

Adam’s mission is to bring the ethics and integrity of his Chartered Accounting background to the area of wealth management.

Combining traditional accounting and financial services has been a welcome move for Adam, allowing him to operate and advise in the financial sector that has been a long time personal passion.

Using his depth of knowledge and experience in tax and accounting Adam is able to demonstrate a level of competence that is unique in the Financial Planning sector.

  • 2005 – Graduated Bachelor of Science from the University of Western Sydney
  • 2005 – Commenced employment with Wybenga & Partners and part-time accountancy studies
  • 2007 – Graduated Bachelor of Business from the University of Western Sydney
  • 2010 – Admitted as an Associate Member of the Institute of Chartered Accountants Australia
  • 2010 – Promoted to Manager at Wybenga & Partners
  • 2012 – Appointed as Associate Director
  • 2015 – Awarded a Diploma of Financial Planning
  • 2016 – Appointed as Partner of Wybenga Group and Director of Wybenga Financial

Schedule a Meeting with Adam


Advisory Cadetships

What is an Advisory Cadetship?
An Advisory Cadetship enables you to commence your career whilst attaining the necessary university qualifications by studying part-time.

How does it work?
Generally, our cadets complete a relevant business or accounting degree at the University of New South Wales, the University of Technology Sydney, Macquarie University, or the University of Western Sydney.

The Firm provides 3-hours paid study leave per week to attend university. This can either be taken at the one time or broken between days depending on the individual’s requirements. In addition, the Firm provides paid study leave for both mid-semester and end-of-year exams.

We take the work life balance very seriously at Wybenga Financial and our cadets are encouraged to have a fulfilling life outside the office. A typical day will have you arriving at the office at around 8.30am with most days concluding at 5.30pm.

What are the benefits of an Advisory Cadetship with Wybenga Financial?
Our cadets benefit from the following:

  • Career path – on completion of their degree our cadets have significant practical experience which will assist them in advancing their careers
  • Work helps your studies – by working full-time our cadets are able to apply their practical knowledge in the university subjects
  • Camaraderie with other cadets – the Firm has a number of cadets at various stages of their career
  • Mentoring – cadets are paired with a senior staff member who oversees their progress and training both at work and with their studies
  • Communication and feedback – the Firm has an open door policy which enables all cadets to interact with all members of staff including Directors
  • Culture – the Firm promotes a friendly social culture with a number of functions throughout the year
  • Modern environment – including ‘socialising’ areas such as pool table and break out area
  • Training – ongoing support and technical training. We also provide internal and external training on a monthly basis
  • Remuneration – working full-time provides a market salary and independence with salaries being reviewed every 6-months

What happens when I complete my degree?
The completion of your degree is the first step of what we hope to be a long and successful career with us. The next step is the commencement of a Diploma of Financial Planning followed by completing the requirements to become a Certified Financial Planner (CFP).

There are always progression opportunities for the right cadets and we are dedicated to the long term development of our staff.

Who should apply?
Current Year 12 students or first/second year University Students who:

  • want to commence their career in financial advisory;
  • are due to commence or are currently completing a part-time business or commerce degree at university with an advisory major;
  • want to gain valuable hands-on experience while completing their qualifications;
  • are looking for a friendly working environment;
  • are team players who display initiative;
  • have a commitment to self-development;
  • possess excellent personal presentation and communication skills; and
  • are motivated and mature minded.

How do I apply for an Advisory Cadetship?
To apply for a Cadetship position at Wybenga Financial send us your details. Please also include in your covering letter why you wish to do a cadetship, include relevant qualities you possess, main interests / achievements, and any previous employment.

Interested candidates should initially forward a resume/covering letter of no more than 3-pages. Please provide full details of contact information (telephone or e-mail).

What if I have more questions?
For further information about our Cadetship program, please send your enquiry to .