Estate Planning

TBC outcome upon death overlooked

The SMSF Association has urged SMSF members to seek specialist advice on the possible impact of receiving a pension on the death of their spouse.

Under the new super rules that took effect on 1 July, the assets supporting the deceased’s pension are counted towards the surviving spouse’s $1.6 million transfer balance cap (TBC), SMSF Association head of technical Peter Hogan said today.

“The end result can be that where an SMSF is paying pensions to two spouses who are comfortably within their respective TBCs of $1.6 million, and one of them dies, the surviving spouse can suddenly exceed their TBC,” Hogan warned.

“It is an outcome of the new super regime that has received little attention and the association is concerned that many SMSF members and their advisers are blissfully ignorant of the impact of these changes regarding the payment of death benefits.”

He added it was wrongly assumed that any excess above the $1.6 million TBC of the surviving spouse could automatically be moved back into an accumulation fund where it would be subject to the usual super taxes.

“This is wrong. The rules for death benefits have changed in that any excess above the recipient spouse’s $1.6 million cap ‘inherited’ because of the death of a spouse must be paid out of super as a lump sum – transferring it into an accumulation fund is not an automatic option under the new regime,” he said.

“Although it is possible to plan to influence this outcome, SMSF members need to receive specialist advice addressing their fund’s particular circumstances to get the best possible result.

“This may mean that members who have addressed their estate planning needs in the past will need to review those plans in the light of the changes that took effect on 1 July 2017.”

He said there would be many instances with SMSFs where the death of one spouse would trigger a situation where the surviving partner would receive a death benefit that took their TBC above the $1.6 million cap.

“This is not just a problem for SMSFs with large pension account balances already exceeding the $1.6 million cap,” he added.

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