Sometimes a gift in a Will fails to provide the intended benefit. The possibility of this happening needs to be considered when the will is being drafted. Those beneficiaries most likely to lose or not benefit from an inheritance are known as ‘at-risk beneficiaries’. Some examples include—
- beneficiaries who may have personal liabilities (for example, professionals, business owners, or guarantors);
- beneficiaries who are vulnerable to others or to themselves (for example, due to age, illness, disability, drug addiction, or influence of others); and
- beneficiaries who are or who are likely to suffer a relationship breakdown.
There are a number of techniques that ought to be considered in relation to estate planning when there are at-risk beneficiaries to consider, some of which utilise self-managed superannuation funds (SMSFs). The use of SMSFs in estate planning is particularly useful in preventing or minimising the risk of litigation under the Inheritance (Family Provision) Act 1972 (SA), because SMSF assets do not necessarily become part of a deceased estate.
A binding death benefit (BDB) nomination is an instruction to the trustee of the SMSF telling him or her what to do in the event of your death. In general, the trustee must follow such an instruction. A binding death benefit nomination in respect of a SMSF can be expressed to be non-lapsing. So, unlike a death benefit nomination in an externally administered fund, it does not lapse after three years. What is most useful, however, is that, provided the trust deed permits it, the type of benefit or payment can also be specified in the nomination, and those benefits and payments can be structured or tailored to suit the needs of your beneficiaries.
One option would be to direct the trustee to pay your death benefits to a ‘superannuation death benefit trust’, a trust that you would have established as part of your estate plan, or indeed, as part of the superannuation fund. The deed governing that trust can itself be tailored to best suit your estate plan, and could include many of the provisions that are sometimes found in non-simple wills and which we have discussed in other posts.
You might also consider a ‘restricted account-based pension’, a tool which could be used, for instance, to pay an income stream to one beneficiary (for life, or for a shorter period of time), but to protect the capital of the trust for other beneficiaries. This would be useful in providing an income stream for a spouse (first or second), and protecting the capital of the trust for payment to your children when they are older.
The ecology of estate planning is diverse, and opportunities abound to maximise the chances that your beneficiaries will receive that which you intend.