SMSF trustees who have had to roll back some of their fund assets from pension to accumulation phase to comply with the $1.6 million transfer balance cap may have inadvertently given access to a portion of their retirement savings benefits to unwanted parties upon death, according to a technical expert.
“Unless they’ve taken action to protect that accumulation interest, it is potentially exposed to unintended beneficiaries,” SuperConcepts technical services and education general manager Peter Burgess told the SMSF Professionals Day 2018, co-hosted by selfmanagedsuper and SuperConcepts, in Melbourne recently.
“That’s particularly important for clients who were in a pension and had set it up as a reversionary pension, so on their death it was going to revert to their spouse, they had the peace of mind of knowing on their death the whole amount would revert to the spouse and no decisions would need to be made by the trustees, no matter who the surviving trustees were.
“Now if they’ve got that accumulation interest, it’s not covered by that reversionary nomination.”
Burgess pointed out the accumulation interest can, however, still be protected if the SMSF member in question puts in place some appropriate measures.
“It might mean putting in place a binding nomination for that accumulation interest to make sure it ends up in the intended hands,” he noted.
According to Burgess, not all SMSF members need to worry about this situation.
“Some members might be quite comfortable about the fact the surviving spouse is making decisions because they will be the only remaining trustee, so they’ll make decisions about that accumulation interest and they might be quite relaxed about that,” he said.
“But that won’t always be the case. There might be other situations where there are other surviving trustees. So dealing with that transfer balance excess is one thing, but we also need to consider do we need to protect that accumulation interest because your clients may not have given much thought to that.”