SMSF estate and succession planning: What’s the difference?

Most SMSF trustees understand the concept of estate planning and its importance in ensuring your assets are distributed to the right people following your death.

Unfortunately, not all trustees consider the importance of planning a smooth transition for their fund and their super benefits when they pass away.

In a small business a good succession plan removes the risk of the business failing if the key person dies, but few SMSFs have a similar plan in place, despite the significant assets many funds hold. So, what should an SMSF succession plan include?

Succession vs estate planning

While both an estate plan and a succession plan play an essential role in determining what happens to your financial assets after your death, they cover two separate activities:

Estate planning

This is the process of deciding and planning who gets your assets when you die and in what form they are received (such as cash or shares). With your super death benefits, this could be a lump sum, reversionary pension or a mix of both.

For an SMSF, estate planning is a subset of the broader succession planning process for your fund and your super death benefits. If you want to ensure your wishes in relation to your super benefits are carried out after your death, it’s essential to develop a detailed SMSF succession plan well in advance.

Succession planning

This is the process of planning who will control your SMSF after you die or lose mental capacity. Good succession plans ensure a smooth transition in control of your SMSF and safeguard your instructions in relation to the distribution of your death benefits.

Having a succession plan also helps avoids administrative and compliance problems with the SMSF following your death. It can reduce the prospect of reporting and compliance obligations (such as transfer balance account reporting) being overlooked.

Good succession planning also provides benefit payment certainty and increases the ability to make these payments in a tax effective manner.

Why a succession plan is essential

Simply having a detailed Will or death benefit nomination in place is not enough to ensure your super assets will be distributed the way you want.