Estate Planning

Estate planning more important than ever

The treatment of death benefits under the new superannuation laws is putting greater emphasis on proper estate planning procedures, according to a specialist law firm.

During a webinar held last week, DBA Lawyers director Daniel Butler explained death is a compulsory cashing event and now had added significance due to the transfer balance cap set to be introduced on 1 July.

“It takes on a lot more relevance with the reform, that is, whatever isn’t in your transfer balance cap, there is this expectation that whatever is in the accumulation account on the death of the first spouse must be flushed out of the super system,” Butler noted.

He added anyone in pension phase with retirement savings assets of over $1.6 million should begin preparing for how to manage the lump sum of money exceeding the transfer balance cap that will no longer be held within a superannuation fund.

“For these people, estate planning becomes critical because the whole amount will no longer be reverted to the surviving spouse,” he said.

“It’s a big issue here. Members benefits on death have to be cashed as soon as possible, so we really must focus on this.”

He emphasised the fact a lump sum in this situation could only be paid out to the deceased member’s legal personal representative or one or more of the member’s dependants, but warned it meant SMSF trustees had the discretion to make these payments unless directed by something like a binding death benefit nomination (BDBN).

However, he warned trustees against relying too heavily on a trust deed governing the BDBN that is framed around the Superannuation Industry (Supervision) (SIS) Act and Regulations due to the court’s view of these legal parameters in a recent case.

“In the Retail Employees Superannuation Pty Ltd v Pain case there was extensive commentary by the court that showed it was not that impressed by the BDBN legislation in SIS and noted there was a lot of ambiguities, uncertainties and potentially unintended consequences,” he said.

“And the judge was quite scathing and he said ‘it is highly desirable that those SIS provisions on BDBNs be reviewed by the commonwealth and recast’.

“So there would be a lot of SMSFs that rely on SIS, and if you do rely on SIS, watch out, because you could really be skating on thin ice.”

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