A sector consultant has predicted an increase in the use of unit trusts by SMSFs as a means of making compliance with the $1.6 million transfer balance cap under the new superannuation measures easier for trustees in certain circumstances.
SMSF Design chief executive Tracey Besters said the use of unit trusts could be very helpful when formulating strategies to deal with a death benefit that involves an illiquid asset such as a property that is valued in excess of $1.6 million.
“What do we do if a husband and wife have a property in an SMSF valued at $4 million and either person passes away?” Besters said.
“Remember when you have a death benefit income stream you can only have up to $1.6 million.
“So you may have to sell the property. But how many of your clients are going to volunteer to sell the property? Very few I’d imagine.”
She suggested an in-specie transfer might be a solution, but not one that was straightforward as the SMSF would have to deal with property title changes and stamp duty issues.
“I think from a strategy point of view if we’re thinking about the future, I think we’re going to see more and more unit trusts come back into play again,” she said.
“Because if a unit trust owned the property, what could we do on death? We could actually do an in-specie death benefit transfer of the units themselves.”
She added the stamp duty liability involved would most likely be reduced with a unit trust in place.
On the whole, the process of facilitating an in-specie transfer of a property via a unit trust would be a lot easier to execute, she said.
“The use of a unit trust would also allow the SMSF members to keep the property within the family group. So unit trusts are going to come back into play. That’s my prediction,” she said.
