Estate Planning

Small portion of SMSFs passing on wealth

Footwear of varying sizes in a row.

Only a small amount of SMSF households have plans to leave an inheritance.

Only 7 per cent of SMSFs in or transitioning to retirement have specific inheritance plans, with the majority of trustees choosing to use their super to fund retirement spending, a new report from the SMSF Association and Accurium has revealed.

The “SMSF Retirement Insights: SMSFs Treading Water” September 2017 report analysed Accurium’s database of over 65,000 SMSFs, approximately 130,000 trustees, during the 2016 financial year.

The database represents SMSF households that are in or phasing into retirement.

The sixth volume of the report revealed that contrary to the widely held belief that bequests are central to SMSF retirement plans, only 7 per cent of SMSF households had a specific target to leave an inheritance.

The vast majority are looking to use their superannuation to fund spending in retirement, it said.

This figure was down from 20 per cent in the previous year’s study.

Accurium and the SMSF Association said they did not expect only 7 per cent of SMSF retirees would leave an inheritance to dependants or beneficiaries upon death.

“Some trustees won’t live to life expectancy, leaving money unspent,” the report said.

“Even those who live past life expectancy might not run through their money as the margin of safety – from a high confidence level – might not be needed when market conditions are favourable.”

SMSF Association head of technical Peter Hogan said this reflected a reluctance for SMSF trustees to give away too much of their retirement savings to someone else.

“From a retiree’s point of view, when they get to this stage, this is it – they are unlikely to have any other sources of wealth or income, other than what they have in their savings for retirement purposes,” Hogan noted.

“It’s a finite amount of money.

“And remember, the purpose of super has always been to fund retirement and fund a certain lifestyle in retirement.”

Accurium general manager Douglas McBirnie added: “It doesn’t mean that they won’t give any of their wealth away, as many of them have relatively conservative spending plans, which means there’s a reasonable chance that there will be money left over when they pass away.

“It’s just that they aren’t specifically setting up a plan to leave an amount for their children.

“It could be that they’ve set up their plans conservatively and whatever is left can be passed on, but they’re not necessarily changing their lifestyles to be able to leave a certain amount.”

Overall, the report said the level of wealth held inside an SMSF was 75 per cent, while 25 per cent of wealth was held outside the fund.

“So there is a significant amount of wealth held outside super and as we’ve seen from previous studies, SMSF members tend to hold a significant amount outside of the fund compared to other types of superannuation arrangements,” Hogan noted.

He said it could be that parents are instead passing on assets outside of super, such as the family home, to children rather than bequeathing SMSF money, or opting to provide their children with money now in order to get into the competitive property market, for example.

The report also found that for the SMSF trustees that have explicitly set a bequest, there have been a wide range of levels.

The average bequest was $780,000 and in most cases the bequest was less than the balance of the SMSF, implying at least some spend down of capital in retirement, it said.

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