Are SMSF deeds and estate plans ready for the fast approaching superannuation changes?
You probably have heard about the 2016-17 Budget and related superannuation reforms due to apply from 1 July, 2017. However, you might not have thought about estate plans and trust deed updates. In order to ensure your clients are going to be prepared, you need to read on.
Two important things in light of the changes to be considered are:
For self-managed superannuation fund (SMSF) members, does their trust deed need to be reviewed or updated?; and
Does the member’s estate plan need to be altered or reviewed in light of the changes?
SMSF Deeds should be reviewed to ensure amongst other matters that the deed provides/is amended for the following:\
Ability to transfer between pension and accumulation accounts
Adequate rules about contribution limits, the $1.6 million cap and the ability for the trustee to refuse contributions that exceed limits
Ability for the trustee to cover any costs which may arise as a result of the changes
Anti-detriment provisions may have to be removed; and
Ability for members to claim any deductions or make carry-forward concessional super contributions that arise as part of the changes may have to
In terms of estate planning, some things to consider are:
A reversionary pension nomination will only cover the relevant pension amount. So, anyone with over $1.6 million in pension phase who was relying
on their pension nomination will have to put other measures in place for the excess. For example, a binding death benefit nomination may have
to be made if the excess is put into the accumulation account, or the member’s Will may have to be altered if the money is taken out of super
and not already covered by the existing Will.
Particular care may have to be taken when passing control of any self-managed superannuation funds on death if a reversionary nomination no longer
covers the full superannuation balance.
If the reversionary beneficiary and beneficiary/ies under the Will differ, then the Will may have to be changed. This is because the amount going
to the reversionary beneficiary may now be less than previously anticipated.
Spouses with a combined benefit exceeding $1.6 million may have to reconsider their estate plan in light of having to eventually fall below the
The Will may have to be changed simply due to an increase of assets in the estate or due to the different concession limits and tax outcomes –
the figures that the current estate plan was prepared upon may no longer apply.
For those of you who have not read about the changes, from 1 July, 2017, the amount one can transfer into the tax-free pension phase will be capped
at $1.6 million (subject to indexation). Anyone already in pension phase with a balance over the cap will be forced to remove the excess. There
is a grace period of 6 months for people already retired with a balance of less than $1.7 million. Retirees can either transfer the excess to their
accumulation account (where earnings are taxed at 15%) or withdraw the excess from their superannuation.
The transfer balance cap also applies to balances which have arisen from a deceased family member. If a member effectively “inherits” a pension account
from their deceased spouse either as a reversionary beneficiary or by taking a death benefit as a pension, the deceased’s spouse’s balance is to
be added to the member’s for the purposes of the cap, and they have up to around 12 months (depending on the circumstances) to rectify the situation
so that they do not exceed the transfer balance cap.
Amongst other changes, the high income contributions tax threshold is being reduced from $300,000.00 to $250,000.00 and the annual cap on concessional
(before-tax) superannuation contributions is being reduced from $30,000.00 or $35,000.00 (depending on age) to $25,000.00. Also, the non-concessional
contribution cap is being reduced to $100,000.00. These changes may overall impact on what a member’s superannuation balance will likely end up
being at the time of death or retirement.
To ensure that your clients make the necessary updates to their estate plans and trust deeds in order to apply to the superannuation reforms, please