SMSF advisers may have overlooked superannuation proceeds trusts previously, but they now need to be mindful of the structure due to the super reforms that came into effect from 1 July 2017, according to an industry lawyer.
At a DBA Lawyers SMSF Strategy Seminar in Sydney today, special counsel Bryce Figot warned even those advisers who have never used a super proceeds trust need to be able to declare it was an informed decision not to use one, rather than a decision based on ignorance of the structure.
“Even if these people aren’t your clients, if you’re the person in your firm who has SMSF expertise, you may well be called upon to advise on this situation,” Figot said.
A super proceeds trust can be set up after the death of a family member and can be established outside of a will for individuals who pass away at a younger age who have minor children and are unlikely to have spent much money on creating a complex will before their death, unless the death was foreseeable, he said.
“Odds are they will have a simple will, if that. So if you want to do something after death, you’ll probably have to set up after death outside of the will,” he said.
“People are critical to say you should plan things beforehand, but it’s just not realistic. This is talking about when people die in their 40s or even 50s and they probably have other expenses to pay for before they pay for estate planning or expensive wills.”
A super proceeds trust converts passive income for minors into income taxed at marginal tax rates. It receives income from a super fund resulting from a death benefit and can be established by a trust.
“You get excepted trust income which means the passive income gets taxed, even though it’s for a minor, at marginal adult tax rates. You get that lovely tax-free threshold and you don’t get hit with that punitive tax rate that minors get hit with,” Figot said.
He also recommended members have only one beneficiary per super proceeds trust and a different trust for each child, unless the ATO advises otherwise, in case of conflict between children when they are adults.
But he warned children are entitled to see the books of account from the trust dating back to inception if they so desire, which the parents may not want.
“Do you want to be exposed to that? Definitely not. Yes it’s slightly more of a hassle to have two trusts, one for each daughter. I think you’re going to have to do it,” he noted.
