Grandfathered insurance rules can validate strategies

The grandfathering of the rules allowing certain insurance cover to remain in an SMSF after 1 July 2014 might allow the strategies behind taking out the specific policies to continue to be implemented, according to a leading superannuation adviser.

Speaking at the recent SMSF Members’ Association conference, MLC SMSF advice national manager Peter Hogan said: “For policies which are grandfathered, policies which were in place prior to 1 July 2014, there certainly might be a strong argument to say the purpose for which you put that policy in place can actually still be implemented after 1 July 2014.”

Since 1 July 2014, trustees have no longer been allowed to hold trauma insurance, total and permanent disablement insurance with own occupation definitions, and comprehensive income protection insurance inside their SMSFs.

However, if these policies were already established inside an SMSF before this date, they have been allowed to remain within the fund.

“So if, for example, you held an insurance policy and your trust deed said the trustee was free to use the insurance policy for whatever purpose they chose, and there may well be some strategy reasons why they would choose not to credit the payout to the insured member’s account, then there is an argument to say going forward that policy is grandfathered from the new rules and you should be able to still use it for the purpose for which it was put in place,” Hogan explained.

He stipulated whether or not the scenario could apply was entirely dependent on the SMSF trust deed.

“To see whether that’s relevant you really need to look at your trust deed to see what the rules of your fund provided for prior to the change of the legislation,” he advised.

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