Advisers of SMSF clients need to consider carefully any estate planning strategies either in place or being considered in the wake of the superannuation legislation the government passed earlier this month, according to a specialist law firm.
Cooper Grace Ward partner Clinton Jackson pointed out the $1.6 million transfer balance cap to be implemented on 1 July 2017 has implications for reversionary pensions.
In particular, he recommended that advisers now carefully consider the benefits of having an SMSF trustee retain their discretion to control when an income stream is paid to a surviving spouse upon death, as opposed to automatically locking it in a reversionary pension as is currently often the case.
“While reversionary pensions are useful estate planning tools, the new rules provide for a reversionary pension to count toward the recipient’s transfer balance cap 12 months after death,” Jackson explained.
“If the pension is not reversionary, we can choose the start date and therefore the date it counts toward the recipient’s cap.”
Also reflecting on the new legislation fellow Cooper Grace Ward partner Scott Hay-Bartlem highlighted the significance now of child pensions in regard to estate planning under the transfer balance cap limit.
“One strategy that will come to the fore for clients with younger children is the availability of child pensions, as the treatment for transfer balance caps can be significantly advantageous,” Hay-Bartlem said.
While the legal firm only emphasised two areas requiring consideration under the new rules, it warned the overall effect of the recent legislation on SMSFs and estate planning would be wide-ranging.
They recommended advisers be familiar with the relevant strategies that will achieve the best client outcomes under the new superannuation regime.
