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Estate planning concerns with super reforms

The super reforms have seriously disrupted our ability to ‘set and forget’ estate planning strategies where SMSFs are involved. Caroline Harley, Head of our Wealth Management Law team shares her thoughts on how you can defuse this ticking time bomb.





The introduction of the Transfer Balance Cap has introduced a new layer of issues for estate planning.

There was a time when the most challenging part of estate planning was determining whether a reversionary pension was superior to a Binding Death Benefit Nomination (“BDBN”). Professional advisers are now wishing for such simplicity and reminiscing about the ‘good old days’. However, this is still a vital question that must be asked to determine the standing of different methods to bind the SMSF Trustee to your intended wishes on death. The problem we are now facing is that the new Transfer Balance Cap may determine an end result that was not intended by the member when that strategy was originally put in place.

Now there are considerations as to:

  • whether the Transfer Balance Cap is going to be breached by clients now or upon the death of their spouse,
  • whether there is the ability under the trust deed to have time to restructure for the receiving spouse to fall below the cap following the death of a member,
  • what risks exist in paying directly to Dependants from super as opposed to paying the Estate, and
  • what are the benefits and risks of keeping a reversionary pension nomination in place?

Reversionary Pensions

One of the biggest changes that some of our clients are unclear about, are in relation to reversionary pensions. Where a reversionary pension transfers on death, if the value is over the 1.6 million cap (or if the recipient’s existing Transfer Balance Account would exceed the cap after receiving the reversionary pension) the recipient cannot roll any of the reversionary pension balance back to their own accumulation account. It must be paid out as a lump sum which would not be the intention for members setting up reversionary pension nominations; otherwise they would have utilised a BDBN to achieve such an outcome.

The result is that all SMSF members must review their death benefit strategies including Binding Death Benefit Nominations, reversionary pension strategies, and relevant trust deed provisions. It is important to ensure that the rest of the member’s estate planning documents work together to benefit beneficiaries in the way the member had intended. With many old trust deeds left unread there is an increased risk with these new changes, coupled with the existing risk of estate litigation strategies should be revisited as a matter of priority in order to diffuse the ticking time bomb.

Contact our  Legal advisors on 1800 333 143 if you would like to discuss any concerns about your clients’ estate planning strategies involving an SMSF.

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