SMSF practitioners and trustees should incorporate family protection trusts into estate planning strategies to safeguard assets and mitigate the tax implications of future legislative changes to the superannuation system, including the proposed earnings tax on balances over $3 million, according to an SMSF specialist.
LightYear Group director Grant Abbott emphasised the importance of selecting an effective approach to manage tax obligations in estate planning and, to illustrate his point, he presented the scenario of an SMSF trustee with $2 million in a pension account and $3 million in a fund in the accumulation phase, seeking to transfer portions of these funds.
“Why would you even contemplate [transferring funds directly into an estate] when you know that from 1 July 2025 we’ve got an accrual of wealth tax? Having an estate with solvent assets in it is like a time bomb [and] it’s the last thing you want to be doing,” Abbott told attendees of a webinar today.
“We can actually pull that money out now and cede it into a family protection trust by way of a gift or a transfer. It means our SMSF [balance] has effectively gone down and [the funds are] now sitting inside this family protection trust. The beauty of that is the family protection trust will never get into the estate.
“We’ve got the [$3 million] out tax-free, which is fantastic so we don’t have to worry about any changes or super death benefits or any of that sort of stuff because we are pulling it out now.”
For a family protection trust to serve as a useful strategy, he stressed the need for practitioners to ensure the set-up and administration of the trust was in order.
“We need to have a line of succession. What you want to [organise] is who is going to be first, who is going to be second and [so on] because what happens if they get bankrupt, if they get divorced or if they get incapacitated and die? If that happens, [those members] can then peel out of the trust and then it goes down to the next family protection appointee,” he said.
“[A] line of succession is absolutely crucial for your clients. I would recommend that you go at least four of five [members] deep. We want to start building these [trusts] for other generations, particularly when you start looking at this sort of amount of money.”