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Strategy 10: dealing with a self-managed superannuation fund

Setting the scene:

  • Jay is the sole member of a self-managed superannuation fund.
  • The fund has assets of $1m plus insurance cover for a further $1m.
  • Jay is the sole director of the company acting as trustee of the fund.

Issues for Jay to consider include all of the issues listed in strategy 9 plus the following:

Issue Options Instruction
Who will make the decision regarding the distribution of the death benefit?

Jay must consider who to leave the shares in his trustee company to

Important to check:

  • the trust deed to see what it says on death of a member
  • the company constitution
Remember Katz v Grossman-type problems1
Does Jay want more certainty regarding death benefit recipients? Does the fund permit non-lapsing directions or nominations? Consider court’s remarks in Donovan v Donovan2 regarding non-lapsing nominations

Is an option to amend the deed and compel the trustee to pay the benefit to certain persons/LPR?

What if a nominee predeceases?

What tax issues arise on death?

Selling assets or transferring assets out of the fund would generally be a disposal for CGT purposes. Stamp duty and possibly GST issues might also arise

Consider also tax issues based on death benefit dependant status of recipient - see strategy 9

Does fund have any borrowings?

If the fund has borrowed to purchase an asset, what will this mean in the event the fund is wound up?

 

Are disputes likely?

If Jay is really concerned about the ability of his successors to properly deal with and divide his superannuation, he could consider moving part of his superannuation benefit to a new fund and deal with both superannuation Interests separately

May have CGT consequences

But may be simpler to divide super between two funds (60% and 40%) or three funds (60/20/20)

 

Are there reserves in the fund?

If the fund has reserves, consider permitting new members to join the fund

Consider risk of introducing new members and trustees

Are there losses in the fund? If the fund has tax losses, consider permitting new members to join the fund

Especially if an anti-detriment payment is made and a deduction claimed (but often difficult to make such a payment in a single member fund without reserves)

 

1 [2005] NSWSC 934. See Chapter 15 of Estate & Business Succession Planning, 7th edition

2 [2009] QSC 26. See Chapter 15 of Estate & Business Succession Planning, 7th edition