Category Archives: Superannuation

Have you considered what you will do if an unexpected event occurs?

Your SMSF is a long-term plan.  Much can happen during this time including illness, incapacity or death of a member.

It is best practice to have contingency plans in place to deal with unexpected events. For example, if a fund member dies, leaving you as the sole member are you happy to continue with the SMSF?

Outlined are some issues to consider planning for as trustees. Leaving the planning to when, and if an event happens may be too late.

Death

Think about where you want your superannuation to go on your death. Given the introduction of the $1.6 million transfer balance cap which means larger sums of money may need to leave the superannuation system sooner, planning has never been more important. You may need to think carefully about who receives your superannuation on death to maximise its benefit for your beneficiaries.

The rules of your SMSF, as set out in your trust deed and related documents, determine how the trustee structure is to be reconstructed on the death of a member as well as how death benefits are to be handled by you and your fund.

A lot of careful consideration needs to be given to understanding the member’s wishes to ensure that your fund’s trust deed and broader governing rules are drafted appropriately to achieve these requirements.

Legal tools to help direct your superannuation can include making a binding death benefit nomination to nominate who will receive your superannuation on your death or providing for your pension to continue (or revert) to a permitted beneficiary (such as your spouse) following your death.

You may also consider appointing a corporate trustee.  If the membership of an SMSF with individual trustees changes, the names on the funds’ ownership documents must also change. This can be costly and time-consuming.

A corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a significant succession-planning issue for an SMSF as well as for the estate-planning of its members.

Diminished capacity

Consider the consequences if you become unable to act as trustee (e.g., due to mental incapacity). You can appoint an enduring power of attorney to act in your place as trustee, if required.  This is someone who can be trusted to handle your financial affairs and can be appointed as trustee of the SMSF.

Member leaves

How would your SMSF be affected if one or more of the fund members decided to exit the fund? For example, an SMSF heavily weighted in real estate may have to sell the asset, or introduce a new fund member to allow the exiting member to transfer out of the fund.

Separating couple

Family law contains a number of options for superannuation to be split between a couple who separate or divorce. Your superannuation is treated separately to your other property, so specialist advice may be needed.

Reviewing your insurance

SMSF trustees should regularly review insurance as part of preparing your investment strategy. This includes considering whether or not insurance cover should be held for each SMSF member.  Your insurance cover may be essential if an unexpected event occurs.

Source: SMSF Professionals Association of Australia (SPAA)

Gemma Woolley is the Superannuation Services Manager at Shakespere Financial Group. 

If you’d like more information regarding your self managed super fund, or if you’d like some advice in setting one up, contact Gemma  gemma@shakes.com.au / 08 9321 2111

Trust deeds in the new SMSF world – Benefit payments and estate planning

Your superannuation trust deed along with the superannuation laws form the governing rules that self managed super funds (SMSFs) need to operate. The introduction of the $1.6 million transfer balance cap (TBC) and new transition to retirement income stream (TRIS) rules are game changers for SMSFs when it comes to benefit payments and estate planning. With the new super rules in effect as of 1 July 2017, now is the right time to review if your trust deed needs to be enhanced or amended to deal with the new approaches and strategies you may need to implement.

Read the deed

The first step in reviewing your superannuation trust deed will be to read it. Trust deeds are legal documents which can be complex to read, so you may want help from an advisor with this.

It is likely that most deeds will not result in a breach of any superannuation laws and would provide the trustee with powers to comply with relevant tax and superannuation laws as they change over time.

The next step would be to review the deed in consideration with your own circumstances.

For example, a common scenario may be a restrictive deed that only provides the trustee with a discretion to pay death benefits. Therefore, if a member of that SMSF wanted to create a binding death benefit nomination, it would be irrelevant due to the deed’s governing rules.

In any event, deeds which are clearly out of date will need to be amended as soon as possible.

Deeds post 1 July 2017

Post 1 July 2017, there are many approaches and strategies that will differ from the past and it is essential to ensure that your SMSF deed does not restrict you in anyway. We note the following areas should be considered:

Paying death benefits

The $1.6 million TBC now restricts the amount of money that can be kept in super on the death of a member. This is crucially important as when a member dies their TBC dies with them. SMSF members should review their estate planning and further review their trust deed for the following:

• Does it allow for binding death benefit nominations (BDBN)?
• Do BDBNs lapse every 3 years in accordance with the trust deed when the legislation does not prescribe it?
• Does it consider the appropriate solution when there is a conflict between a reversionary pension and a BDBN and which will take precedence?

Reversionary pensions

Reversionary pensions are pensions which continue being paid to a dependant after your death.  Under the TBC, reversionary pensions will not count towards a member’s TBC until 12 months after the date of the original recipient’s death. Importantly, the transfer of the pension from the deceased to the new recipient will count towards the TBC. The value of the credit to the TBC will be the value of the pension at the date of death, not the value after 12 months. This increases the complexity of reversionary pensions prompting a review of trust deeds to consider:

• Does it allow for a reversionary pension to be added to an existing pension or are there restrictions?
• Should it automatically ensure that a pension is reversionary so that it is paid to a surviving spouse?

Pensions

The TBC also has implications for strategies in commencing pensions and making benefit payments. Trust deeds may need to be reviewed for:

• Ensuring that commutations are able to be moved into accumulation phase rather than being forced as lump sums out of superannuation.
• Are there any specific provisions relating to the TBC? There may be value in ensuring that the deed restricts pensions from being commenced with a value greater than the TBC.
• Are there provisions which detail where commutations must be sourced from first?
• Are there restrictive pension provisions that the trustees must comply with?

Transition to retirement income streams

Tax concessions for TRIS where the recipient does not have unrestricted access to their superannuation savings (known as meeting a condition of release with a nil chasing restriction) have been removed. Trust deeds may need to be reviewed for:

• Does the deed allow for the 10% maximum benefit payment to fall away once a nil condition of release is met?
• Does the deed deal with a TRIS character when a nil condition of release? (Does it convert into an account based pension?)