Consider a widow with a pension who has recently re-married, and on her death wants to have the income distributed to her spouse, but on the death of the spouse, would like the capital to go to her son of previous marriage. She has a single-member SMSF, with new husband as the other Trustee. How can these events be achieved?
The Trust Deed (SMSF governing rules) will need to be checked to see if we can do the above – rarely can this sort of detail be noted in a trust deed. Then we vary the deed to specify this specific situation, so that on her death, her pension benefits are paid to the dependent spouse, as a non-commutable death benefit pension ( ie it cannot have a lump sum or the full amount withdrawn), and that on his death, the son will get the final capital.
What are the Potential Problems?
One is that on the death of the lady, the new spouse will become a member (Section 10(3) of the Superannuation Industry (Supervision) Act 1993 (Cth). Or SIS act). As a member he must become trustee (or director if there is a corporate trustee). This really means he now has FULL control of the SMSF and of course all the assets! If he doesn’t get on with the son he could override the Trust Deed, he could possibly take all the money and put in his own member account or other maneuvers. When he dies, his account becomes his death benefit which can ONLY be paid to his dependants or legal personal representatives. Hence the son would miss out. The benefits would need to be paid to the spouse’s estate and the son would need to be specified in the spouse’s will as a beneficiary. Wills can be changed, so the payment to the estate could be halted there. A Mutual Wills agreement may assist to mitigate such risk. Also, a third party could challenge the husband’s estate under a testator’s family maintenance claim.
As always, many costs and heartache can be saved by getting advice!
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