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Estate planning consequences ‘not appreciated’ in super changes

Estate planning, magnifying glass

A policy focus on optimising contributions while heeding a $1.6 million account cap has been “understandable”, but super's long-term considerations have fallen by the wayside as a result.

That’s according to the SMSF Association’s CEO John Maroney who said today (12 January) that the SMSF industry is still grappling with the 1 July 2017 changes to super policy.

“In the lead up to 1 July 2017, the industry’s focus was on optimising contributions and reducing pension accounts to under $1.6 million as well as considering CGT relief for those affected by the transfer balance cap and transition to retirement changes,” he said.

“A consequence of this understandable focus on these issues requiring immediate action was less attention being paid to the longer-term strategic consequences of the changes.”

These strategic consequences apply to areas including estate planning and death benefits.

“Now the industry has had time to reflect on the changes, it has recognised the enormous impact on estate planning that wasn’t appreciated at the time the changes were introduced,” Mr Maroney continued.

“It’s also had the effect of making death benefits, always a complex issue, even more complex. The reality now is that SMSF members who fail to appreciate what these changes mean, or fail to get specialist advice, could find themselves being forced to move money out of superannuation.”

Mr Maroney said the changes have made the system more complex and increased the “compliance burden” but acknowledged that the SMSF Association’s concerns about these issues have been “allayed somewhat” by conversations with the government and the Australian Taxation Office.

He added that the transfer balance cap, SMSF event-based reporting and total superannuation balances are new concepts for advisers and SMSF members.

“The increased complexity can’t be denied, and advisers are urged to speak regularly with their clients, to streamline and assess their processes, and take every opportunity to increase their technical knowledge.”

The SMSF Association last year warned that many members are “blissfully ignorant” of the potential impact of the super changes on their estate plans.

The association’s head of technical, Peter Hogan warned members that, as a result of the changes, upon the death of a member’s spouse, the surviving member could inadvertently exceed the $1.6 million transfer balance cap.

Mr Hogan said: “The end result can be that where an SMSF is paying pensions to two spouses who are comfortably within their respective TBCs of $1.6 million, and one of them dies, the surviving spouse can suddenly exceed their TBC.

“It is an outcome of the new superannuation regime that has received little attention and the association is concerned that many SMSF members and their advisers are ‘blissfully ignorant’ of the impact of these changes regarding the payment of death benefits.”

He added that the assumption that the surviving spouse’s transfer balance cap is automatically moved into an accumulation fund is wrong.

“The rules for death benefits have changed in that any excess above the recipient spouse’s $1.6 million cap ‘inherited’ because of the death of a spouse must be paid out of superannuation as a lump sum; transferring it to an accumulation fund is not an automatic option under the new regime.”

Estate planning consequences ‘not appreciated’ in super changes
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