In the new world of superannuation starting on 1 July, a well-thought-out estate plan must consider key strategy options for trustees and members of an SMSF, according to an industry executive.
The first strategy should be designed to equalise member balances between couples, Prosperity Advisers Group financial services associate director Gary Dean told selfmanagedsuper.
“The earlier this strategy commences, the greater will be the opportunity for individuals to retain a higher proportion of wealth in the superannuation environment when they ultimately become the recipient of a superannuation death benefit payment,” Dean noted.
“The equalisation of account balances can often be achieved either via concessional contribution splitting or an old-fashioned ‘withdrawal and recontribution’ strategy, depending on the individual’s age.
“The withdrawal and recontribution strategy also has the added benefit of creating a larger tax-free component in the recipient’s superannuation account.”
Dean said another consideration from 1 July was that death benefit pensions would no longer be able to be commuted and rolled back from pension phase to accumulation phase within the super environment.
“When a beneficiary elects to roll over a death benefit pension, they will be prohibited from consolidating these funds with existing superannuation entitlements,” he warned.
“Death benefit pensions must always be separated from other superannuation accounts.
“The new legislation will give clients more flexibility and choice in relation to the portability of death benefit pensions.
“Under the new rules, clients will have the option to roll over both new and existing death pensions from one superannuation fund to another.”
The super rules will also have an impact on young beneficiaries, he added.
“The 1 July superannuation reforms will have an impact on the ability for minor beneficiaries, that is, children under the age of 25 who are financially dependent, to receive a death benefit pension,” he said.
“The young beneficiary will receive a modified transfer balance cap that will be calculated based on the deceased parent’s situation.
“Should the death benefit pension be greater than the transfer balance cap of the deceased, then the excess amount must be cashed out of the superannuation environment as a lump sum payment.”
He noted that for any child death benefit pension that starts after 1 July – whereby the deceased parent had not triggered a transfer balance account – then the beneficiary child’s cap will be the full $1.6 million for a sole beneficiary or in the situation of more than one child, the cap will be a proportionate share of the total transfer balance cap for each child.
“A young person’s transfer balance account will cease when their death benefit pension ceases, which in most cases will be at age 25,” he said.
“The young person’s ability to access the full transfer balance cap to commence their own pension at retirement will not be compromised by the death benefit pension they had already received.”
