‘How can I make sure the proceeds of my trust go to those whom I wish?’

Apr 08, 2024
Source: Supplied.

Q: We are an elderly couple in our late 70s. We own an industrial building that is owned through a trust from which we receive rent, with both of us appointed as trustees. We also have a Self Managed Super Fund (SMSF) which is also held in a trust.

We understand that we can’t leave the trusts in our Wills. We are concerned that when we die, the proceeds of the trusts won’t end up with our children. Can you offer any suggestions about how we can ensure that our wishes are followed ?

A trust is effectively an administrative tool that can hold assets on behalf of beneficiaries of the trust. Beneficiaries are normally individuals which in your case includes the two of you, but might also already include your children and grandchildren.

The operating decisions of the trust, including who gets paid what from one year to the next, are made by the trustees which, again, are currently both of you.

As trustees, you must follow the rules of the trust which are set out in an extensive document called a trust deed. If drawn up properly, the trust deed should explain a process for appointing new trustees if required.

You might decide to make new appointments now or to wait until it is absolutely necessary. Your accountant or a lawyer will be able to explain how that could be done but it is normally a documented resolution detailing a change in trustees.

What about the Self Managed Super Fund (SMSF)?

The SMSF is also a trust but in this case, superannuation laws require all members of the SMSF to be trustees of the fund and all trustees to be members, so unless your children are also members of the SMSF, they cannot be trustees.

The simplest option to ensure the balance of your individual superannuation account balances go to those whom you wish to receive the money is to complete a non-lapsing binding death nomination.

You need to make sure your SMSF trust deed allows these nominations.

It is often a source of confusion but in an SMSF, the individual member account is what counts, not the total fund.

Your death benefit nomination might direct that your spouse receives all of your account balance so that will avoid the need to dispose of any assets. If you nominate your children as the beneficiaries, they would need to become members of the fund if they wish to retain the assets within the superannuation fund environment.

In a practical sense, financial advisers often suggest that it may be prudent to wind up the SMSF when you move into the latter years of retirement. The only exception might be if the fund holds commercial property assets that might still be required for your children to run an ongoing business from.

If you decide to wind the fund up, you then transfer the funds to a low-cost public offer type scheme opening an account in each of your names. Some funds even allow you to transfer the existing assets of the SMSF in specie.

In many cases, SMSF trustees find that the total operating costs are substantially less in a public offer scheme than the ongoing adviser, accountant and auditor fees that they might currently be paying.

For example, total costs for an $800,000 fund in a well-run scheme with good historical returns, can be as low as $4,800 per annum. You would also no longer be legally responsible for its operation.




IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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