Michael Kloekner from Clime Asset Management discusses strategies for SMSFs and estate planning. He covers SMSF structuring using individual versus corporate trustees. Estate planning strategies like testamentary trusts and binding death benefit nominations are explained. The importance of powers of attorney, especially enduring powers of attorney, is highlighted to ensure your financial affairs can be managed if you lose capacity. Case studies demonstrate how these strategies can help with tax minimization, asset protection, and allowing your wishes to be followed in the event of incapacity or death.

1. Clime Asset Management
SMSF and Estate Planning Structuring and Strategies
Holistic Wealth Solutions
Integrity Transparency Conviction

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Introduction
MICHAEL KLOECKNER
Director Private Clients B Com LLB Dip Fin Super
Head of Clime Super
TIMING
QUESTIONS

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Disclaimer
The information contained herein is not intended to be advice and does not take
into account your personal circumstances, financial situation and objectives. The
information provided herein may not be appropriate to your particular financial
circumstances and we encourage you to obtain your own independent advice
from your financial advisor before making any investment decision.
Clime Asset Management Pty Limited (Clime), its directors, employees and
agents make no representation and give no accuracy, reliability, completeness or
suitability of the information contained in this document and do not accept
responsibility for any errors, or inaccuracies in, or omissions from this document;
and shall not be liable for any loss or damage howsoever arising (including by
reason of negligence or otherwise) as a result of any person acting or refraining
from acting in reliance on any information contained herein. No reader should rely
on this document, as it does not purport to be comprehensive or to render
personal advice.

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How do I make the most of my super?
Agenda
• Clime Group
• What is an SMSF?
• SMSF Structuring
• Estate Planning Strategies
• Clime’s Super Administration and Accounting Service
• How Clime manages money
• Clime Super and Clime Asset Management – Holistic Wealth Solution

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Introducing the Clime Group
Clime Investment Management
(ASX:CIW)
StocksInValue
Online Stock Valuation & Research
Clime Asset Management
Funds Management - $620M*
as at Feb 2016
Clime Super
SMSF Administration Service

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What is an SMSF?
• A trust: Trustees are individual members or company
• 1 to 4 members
• Investments held and managed by the trustee
• Members must be individual trustees or directors of the trustee company
• Purpose: provide benefits to members on retirement

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SMSF Structuring
Individual Trustees Structure
Individual Trustees
Ben & Kate Graham
Graham Family Superannuation Fund
Member
Ben Graham
Member
Kate Graham
Trustees:
Ben Graham, Kate Graham
Superannuation Fund:
Graham Family
Superannuation Fund
Fund Members:
Ben Graham, Kate Graham

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SMSF Structuring
Corporate Trustee Structure
Corporate Trustee
Value Pty Ltd
Directors: Ben & Kate Graham
Graham Family Superannuation Fund
Member
Ben Graham
Member
Kate Graham
Trustee Value Pty Ltd
Directors: Ben Graham, Kate Graham
Superannuation Fund:
Graham Family Superannuation Fund
Fund Members:
Ben Graham, Kate Graham

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SMSF Structuring
Corporate Trustee vs Individual Trustees
• A company is a legal entity existing in perpetuity
• One trustee instead of two can operate
• Simpler to register assets in one name Value Pty Ltd
• No need to transfer assets on death of a member
• Avoids costs, trauma and probate later
• No need for an outsider if you are a single member SMSF
• Easy to enter and exit members eg. children, divorce, attorneys
• Allows corporate powers of attorney to act in incapacity

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Some Responsibilities of Trustees
• Document investment strategy, ensure binding death nominations in
place and a compliant trust deed
• Keep it separate – bank a/c, assets in trustee & funds name
• Accept contributions and pay benefits
• Document everything - minutes
• Annual financial statements, regulatory returns, tax returns and audit
• Legislative compliance – SIS Act, Tax Acts, Trust deed, Corporation Acts

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The Clime Super Service
Administration, strategy, estate planning
• Keeps you compliant e.g.
- Contribution tracking
- SMSF administration, accounting and tax return ($1320)*
- Licenced Audit ($440) – prep and lodgement*
• Manages all the paperwork
- Receives the mail and acts on it
- Pays ATO, ASIC, Fees
• Online, real-time access to information
- No more waiting till year end
• Access to specialist strategic super and estate
planning advice
* Base cost with Clime managing investments plus $165 each for pension mode

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Estate Planning Starts Now
• Estate – what you want to happen (SMSF and will); INTENTION
• Will – what happens (excludes SMSF unless death nomination)
– lump sum in simple will unless testamentary trust will; ACTUAL
• EPOA – Granting legal capacity (SMSF) NOW
• Funds Management – NOW
- what your long term plan is for sustainably earning 10% per
annum to cater for your old age and surviving spouse
- your spouse is relying on you to protect him/her in
incapacity/death

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Reversionary Pensions
What is a reversionary pension?
Reversionary pensioner takes over the ownership of a pension.
• The reversionary beneficiary must be a tax dependent.
• Will not apply to accumulation account unless a pension started.
• On the death of the reversionary beneficiary – the remaining balance in the
reversionary pension will be dealt with in accordance with the BDN of the
reversionary beneficiary
• Once the beneficiary commences a reversionary pension on the death of a
member, the recipient will have the ability to commute the pension (stop and
take a lump sum). This may not be the deceased wishes!
• Minute must be drafted and trust deed must allow a reversionary pension!

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Incorporating Super into your Estate Plan
• Super does not form part of a person’s ‘estate’ assets, and can therefore
not be included in a will
• A member can include their super’s death benefit in their estate by
completing binding-death nomination

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Death benefit nominations
• The payment of a death benefit is ultimately a matter of trustee discretion
• There are two options most super funds allow that help ensure benefits
go to an intended recipient:
1. A binding death benefit nomination, and
2. Non-binding death benefit nomination

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Non-binding death benefit nominations
• This acts as a guide for the trustee as to the preferred benefit recipients
• Ultimately the trustee makes the decision in light of all the relevant
circumstances

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Binding death nominations
• Provided the trust deed allows, a valid nomination binds the trustee to
pay death benefits to the preferred recipient
• Binding death nominations must be clearly stated and recipients must be
dependants or legal representatives of the member

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What’s the best structure for you?
• When preparing an estate plan it is critical that people consider how their
superannuation benefits will be dealt with if they die
• The importance of this is highlighted by the New South Wales case of
Katz v Grossman

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Katz vs Grossman
The facts of this case were as follows:
• Ervin and Evelyn Katz had an individual trustees SMSF. Evelyn died in 2000.
• Ervin had made a non-binding nomination of beneficiary in which he indicated that he
wanted his superannuation benefit to be divided equally between Daniel (son) and
Linda (daughter). When Evelyn died Ervin appointed Linda co-trustee.
• When Ervin died in 2003, Linda appointed her husband Peter as a trustee.
• Linda and Peter refused to follow Ervin’s non-binding nomination and decided to pay
the entire benefit of approximately $1,000,000 to Linda.
• Daniel challenged the appointment of Linda and Peter as trustees of the fund.
• The Court held that both Linda and Peter were validly appointed as trustees.
• As the nomination was non binding, the trustees had the discretion to pay the entire
death benefit to Linda to the exclusion of Daniel.

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Katz vs Grossman
It is therefore crucial to consider the appropriateness of binding nominations
in all circumstances, although there may be circumstances in which you wish
the trustee to have discretion.
In this case, if Mr Katz had made a binding nomination, his wishes would
have been carried out, regardless of who took control of the superannuation
fund.

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Katz vs Grossman
Another option for Mr Katz would have been to use a corporate trustee
which would have avoided the necessity to retain two individual trustees
following the death of Mrs Katz.
Under this option, Mr Katz could have continued to manage the super fund in
the capacity as a sole director of the trustee company and hence avoid the
requirement to appoint another trustee. On his death, Mr Katz’ executors
would have stepped in and taken control of the fund.

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Katz vs Grossman
This case highlights the importance of ensuring:
• Your estate plan transfers control of your superannuation fund (and the
power to pay death benefits) to the right people
• Changes of trustee are properly thought out, documented and retained

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Katz vs Grossman - Summary
• Consider a corporate trustee
• Pass super to your spouse/estate via a binding non lapsing nomination

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Binding Death Nominations
Case #2 – the recent WA case of Ioppolo & Herford vs Conti (24th Oct 2013)
Highlights the importance of making a valid binding death nomination for a
SMSF, and displayed the importance of the inter relationship between BDN,
trust deed and the will
 Mr & Mrs Conti were married but estranged and had a SMSF, (individual
trustees)
 Mrs Conti in 2005 made a will in which she left all her SMSF assets to her
4 children and specifically stated she did not want any to go to her husband
 In 2006 she had made a BDN to her children but it lapsed
 In 2010 Mrs Conti died.
 Mr Conti as sole trustee established a corporate trustee and paid the
death benefit of $648,546 to himself

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Case #2 (continued)
 Mrs Conti’s children as executors took legal proceedings against their
father
 The court found against the children and even made them pay all legal
costs
 The court stated Mr Conti was in his rights to pay the benefits to himself
as the trust deed specifically gave him the power in the absence of a valid
binding death nomination
Lessons:
1. Trust deed – read and understand. May invalidate BDN
2. Will has no power over super (unless BDN to the estate and non
lapsing/binding)
3. Lawyer misunderstood the lack of control of the will
4. Surviving member effectively takes control
5. Despite specific wishes there was no legal “bad faith”
Binding Death Nominations

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Testamentary Trust Wills
A testamentary trust is established by a will that comes
into effect upon the death of the will maker
Simple Will vs Testamentary Trust Will:
Rather than assets passing to the beneficiary’s name, assets pass to the trustee
who holds them in trust for the benefit of the beneficiary
Main benefits:
1. Tax
2. Asset protection
3. Family Law

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Testamentary Trust Wills
Case Example 1: TAX
• Sally dies with a $1m of investment assets and a home worth $1m. She
has setup a testamentary trust will. Her son John is the sole beneficiary.
• John is a miner who himself earns $250,000 per annum and is at the
highest tax bracket of 49%.
• Income of the trust - $90,000 pa from bank interest and the rent of the
property. If John inherited these funds in his own name his annual tax
would be $44,100.

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Testamentary Trust Wills
Case Example 1: TAX (continued)
• If he has inherited assets in a testamentary trust he is able to make
distributions to his wife and grandchildren (who are allowed to receive
income at adult tax rates).
• He distributes $18k to his wife and $18k to each of his 4 grandchildren
and pays NO TAX.

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Testamentary Trust Wills
Case Example 2: ASSET PROTECTION
• Jack and Jill save their whole life and own their house, superannuation
and shares totalling $3,000,000.
• They have 2 children: Robert and Rachel.
• Robert, is a property developer with personal guarantees on a number of
large loans with the bank.

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Testamentary Trust Wills
Case Example 2: ASSET PROTECTION (continued)
• Rachel has recently separated from her husband and is facing the
possibility of family law proceedings and a custody battle for her children,
but has little assets.
• Jack and Jill pass away and leave their assets to their children through
simple wills.

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Testamentary Trust Wills
Case Example 2: ASSET PROTECTION (continued)
Robert failed on a property development and is bankrupted. The bank and
creditors take his $1.5m inheritance in the bankruptcy process.
Rachel received the inheritance and pays the amounts towards the family
mortgage, spent the funds on paying out other credit card debts and leaves
the remaining $1m in the bank. The family court orders her to settle on the
net equity of the assets with her husband and he receives $750,000.

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Testamentary Trust Wills
Case Example 2: ASSET PROTECTION (continued)
And FAMILY LAW
What could have been the alternative?
• Robert could have had his $1.5m in a trust held beneficially for him -
100% protected from creditors in his bankruptcy. He would have lost
nothing.
• Rachel may have loaned money from the trust to pay her mortgage. The
parents could have directed funds to a trust for the children’s education
and a lesser amount may have had to go her husband in the family law
proceedings.

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Powers of Attorney
What is POA?
Power of Attorney is a formal document by which one person called the
donor appoints another person to act on his behalf
Types
1. General Power of Attorney
2. Enduring Power of Attorney
3. Corporate Power of Attorney

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Powers of Attorney
Type 1: General Power of Attorney
• Gives someone the authority to carry out your instructions on your behalf.
• Usually put in place if it is to be used for a specific intention for a specific
period of time such as travel overseas.
Case example
Peter travels overseas for 6 months of the year and has to sign cheques to
pay bills and wishes to have a local option in place to follow his instructions
on email while he is away to manage his property and shares. He has a
general power of attorney drawn up for his accountant Bill to be able to
conduct his financial affairs whilst he is away.

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Powers of Attorney
Type 2: Enduring Power of Attorney
• Allows the attorney to continue in your role beyond losing capacity.
• Everyone should have one!
Case example
David and Mary have a series of investments that fund their retirement and
living expenses. They have enduring attorneys drawn up for their two
daughters if they lose financial capacity. The daughters can, along with a
medical guardianship, pay for the nursing home bond and living costs. They
are able to sign to continue their pension payments and sell the family home
if necessary.

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Powers of Attorney
Type 2: Enduring Power of Attorney (continued)
• Statistics show on average people are living longer and we are an ageing
society.
• It is more likely people will suffer longer periods of deteriorating health
and declining intellectual capacities.
• The most common form of intellectual incapacity is dementia, with
Alzheimer’s disease accounting for 50-70% of all cases.

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Powers of Attorney
Type 2: Enduring Power of Attorney (continued)
Case example
Joe develops dementia and loses capacity to make financial decisions. His
son does not have an enduring power of attorney. There is a very
inconvenient and costly period while his son appeals to the courts to have
one granted, along with the added time and stress dealing with banks and
institutions.

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Powers of Attorney
Type 3: Corporate Power of Attorney
• Allows the role of director to be undertaken by an attorney on someone’s
behalf.
• This is ideally suited for a SMSF with a corporate trustee, in which parents
provide their children with an attorney which allows the fund to operate in
their incapacity or during overseas travel.
• Graham has a corporate power of attorney for his father’s SMSF trustee,
Ray Super Pty Ltd. When his father is deemed incapacitated from
dementia Graham is able to continue the operation of the SMSF to pay a
pension for living expenses and sign financial statements.

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Powers of Attorney
In addition to an EPOA, consider…
The Appointment of Enduring Guardian (AEOG) – guardian decides
• As EPOA deal only with assets you need an AEOG to make health and
lifestyle decisions in incapacity
• Specific clauses can meet personal wishes such as
• A power to make ‘End of life decisions’ to allow you to die naturally
• The Advanced Health Care Directive (AHCD) – you decide
• If you have together with AEOG, AHCD takes precedence
• An AHCD is a written statement of a person’s wishes for their future medical
treatment should they become unable to communicate these wishes.

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Estate Planning Strategies
Strategy Tip #1
Right of residency or life tenancies are a simple and
easy way to ensure your main asset gets passed to your bloodline.
Case example:
Most homes are owned by a husband and wife as joint tenants.
Upon death of one, property automatically reverts to the other. This means
the surviving spouse can alter their will or direct their assets to a new spouse
or their children.
Alternative – sever the joint tenancy to tenants in common, 50% / 50%
ensures no stamp duty is payable.
Directed through your will, the property is left beneficially to your children with
a right of residency to your spouse with legal entitlement to live in the
property until their death.

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Estate Planning Strategies
Strategy Tip #2
Case example: Re-contribution strategy
Alan is 63 years old and his wife Mary passed away leaving him no
dependents. He has an adult son who is not a dependent. His super fund has
a total balance of $450,000. $300,000 of which is taxable and $150,000 tax
free. If Alan passes away and a death benefit is paid to his only son George
$49,500 or 16.5% tax would be taken from the benefit
Under advice, Alan withdrawals his entire balance from super and re
contributes it the next day as a non concessional contribution, which means it
is now tax free. He re commences a pension straight away with this
$450,000 and his components are now crystallised meaning his balance
would remain tax free. Any death benefit payout would not have any tax at
all.

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SMSF, Will, Estate planning, Funds
management health checks
What to do?
• Review current estate plans – wills, attorneys, trust deeds, BDNs, funds management
• Engage specialists – lawyer (wishes being met), accountant (compliance and advise),
fund manager (plan for incapacity/death)
• Get all wills, attorneys, binding death nominations completed NOW
• Reassess your share portfolio, cash level and other investments
• Take appropriate action and provide a copy to your accountant, financial adviser, family
members. Review regularly.
• Talk through your estate plans with your spouse and children so everyone has a clear
understanding – avoids disputes later!
Clime Super does not complete your will or estate planning…
Clime Super will draw up a professional brief to a specialist estate planning solicitor

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Do you, or will the surviving trustee, manage your
portfolio to aim for a 10% net return p.a. as Clime does?
1. Capital preservation is the key to maximising returns
2. Share investing - NROE of a company determines the value
- manage actively - price follows value
- assess Australian and International opportunities
3. Fixed Income Investing – ASX listed - filter out risk and price risk/reward
4. Property investing – invest in 8% yield and 11% IRR
5. Asset allocation constantly adjusted to achieve sustainable returns

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The importance of capital preservation
You need a 150% return to recoup your $1,000,000
2007
$1 Million
-60%
2009
$400,000
NOW
$640,000
+60%
$360,000 Lost

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A company’s NROE determines its value
• Profit is distinct from profitability
• Profitability is measured by Return on Equity
• Return on Equity is normalised by adding back franking credits
COMPANY A
Shareholders equity = $10,000
Profit = $2,000
COMPANY B
Shareholders equity = $20,000
Profit = $3,000

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$
Time
Y0 Y1 Y2 Y3 Y4
D D D D
SELL
BUY
Value
Price
Y5
1. Value growth >6%
+MoS
-MoS
2. Buy at >10% discount
3. Dividends & Franking
4. Sell at >10% premium
Markets continually produce OPPORTUNITY

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What are my options with Clime?
YOU
Existing SMSF
Other Super
Non-Super Investments
Clime Super
Comprehensive
Administration Service
Clime Equity Portfolio
Clear investment strategy
Proven Performance
Your personal portfolio
Cash or in-specie
24/7 access
Holistic Solution
Clime Super
+ Clime Equity Portfolio (DSP)
+ Other Investments

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Our offer to attendees worth $2000
Complimentary SMSF establishment or restructure
Clime will, free of charge:
- Establish a new SMSF
- Or restructure your individual trustees SMSF to corporate trustee
- AND draft an Estate Planning legal brief
- When you establish a Discrete Share Portfolio (min. $750 000)
and appoint Clime Super as your administrator ($1320 + $440 base)
- Within four weeks from today’s date
Independently of the above offer, we offer you, free of charge –
Complimentary Portfolio Assessment
Complimentary SMSF Health Check
Complimentary Estate Planning Heath Check
TO TAKE ADVANTAGE PLEASE HAND IN YOUR FEEDBACK FORM

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Contact Clime Group
Michael Kloeckner
Director – Private Clients
Head of Clime Super
Direct line: 02 8917 2134
Mobile: 0488 188 309
Email: michael@clime.com.au
www.clime.com.au
Integrity, Transparency, Conviction