Documentation under scrutiny

As highlighted at our recent Super Day series, the importance of reviewing existing SMSF documentation is more important than ever. The super reforms have placed particular importance on estate planning considerations and death nominations.

As of 1 July 2017, these are some of the key considerations for your clients:

  • Knowing the difference between a death benefit pension and reversionary pension and whether the actual pension documentation in place is valid in respect of either option. Reversionary pensions will give the beneficiary 12 months breathing space to decide on how best to take the benefit, but the clients may want the trustee to have full discretion on payment of the death benefit. There is no one size fits all solution.
  • As you can only access the $1.6M transfer balance cap once, it is important to question will there be any compulsory cashing of death benefits and how will the fund cope with this?
  • Does the fund have pension death nominations and binding death benefit nominations in place? If so, are they in conflict with each other?
    Keep in mind, pension death benefit nominations apply only to the pension interest, whereas binding death benefit nominations could apply to just the accumulation account or all accounts. This needs to be clarified.

In addition to the pension and death nominations, does the SMSFs current trust deed comply with the current super reforms? As the SMSF deed represents the governing rules, clients need to ensure that the current deed is compliant under the new rules.

Some of the key changes in 2017 were:

  • Action required in respect to pension balances, asset segregation, capital gains and other matters prior to 30 June 2017. Post 1 July 2017, various restrictions apply, with penalties in the form of taxes for exceeding limits.
  • ATO issued guidelines following the passing of the Superannuation Reform legislation including coverage of Transfer Balance Caps, TRISs and other income streams, CGT relief, contributions issues and matters concerning Total Superannuation Balance Caps
  • Introduced as part of the Superannuation Reform legislation, Total Superannuation Balance Caps impact the ability of a member to make non-concessional contributions to superannuation in a particular year
  • Introduced as part of the Superannuation Reform legislation, Transfer Balance Caps limit the amount an individual may have in superannuation income streams (excluding Transition to Retirement Income Streams)
  • The Superannuation Reform legislation included removal of the ability to elect to treat payments as a lump sum instead of as an income stream
  • From 1 July 2017, Transition to Retirement Income Streams may continue but the income generated by assets supporting the income stream will cease to be exempt from tax

Clients need to ensure their current deed provides sufficient powers to comply with the current legislation.

If you require assistance with documentation solutions and reviewing your SMSF clients, contact John Lethbridge, SMSF Specialist Advisor on 1800 333 143.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.