Death and taxes are often cited as the only two certainties in life. The new changes to superannuation laws and the treatment of benefits only supports that position. The changes can mean that if proper advice is not sought, you could end up funding the next government plebiscite rather than maximising any benefits to your family.
There has been lots to think about in relation to the super changes, but with the 30 June 2017 deadline now well and truly passed, it’s time to focus on the estate planning impact of the new super rules.
Here are the key super reforms that mean you should be revisiting your estate planning:
1. The $1.6million cap applies per person in their lifetime. This is a massive estate planning change for couples. Previously if your spouse died you would simply take a reversionary pension and your super would continue almost as if they were still around.
Now, you should consider where you sit in terms of the $1.6million cap. And if you are over, can you restructure to get back under?
If not, the excess has to leave super. This can be a major deal if the underlying asset is a property, or worse a property held via a superannuation borrowing arrangement.
2. Many pensions nominated a reversionary beneficiary when they commenced their pension. In light of the caps this may no longer be the best options for them.
A reversionary pension automatically adds to an individual’s $1.6million cap. They then have 12 months from that date to arrange their affairs to bring them back under the $1.6million.
12 months seems long, but anyone who has been executor of an estate will quickly let you know how short that time frame can be.
3. Anti-detriment payments are no longer allowed. Chances are unless a financial adviser has specifically pointed this out to you, you weren’t even aware this exists – so you aren’t going to miss it too much. Broadly speaking. an anti-detriment payment represents a refund of the 15% contributions tax paid by the deceased member throughout their life on the funds contributed to their self-managed superannuation fund.
These are the key changes, the recommended actions you take will differ dependent on your personal situation. Each of these situations also has differing tax impact, which is often forgotten when talking about super.
At businessDEPOT legal we can work with your key tax or financial adviser to consider whether more appropriate estate planning tools should be considered for you. For example, we can discuss options such as:
- How can we restructure to keep as much as possible in super and under the $1.6million cap.
- Strategies to ensure that any excess above the $1.6million cap leaves super tax free via tax dependents where possible.
- Appropriateness of Child Pensions.
- Superannuation sub-trusts
BONUS TIP: You should also consider a review of your power of attorney documents to ensure that your attorney has sufficient additional powers to deal with the $1.6million caps when needed, such as allowing the attorneys to update your superannuation nominations where appropriate. This can assist in minimising the tax impact for your superannuation upon death.
General Advice Disclaimer
Information provided on this website is general in nature and does not constitute financial or legal advice. Every effort has been made to ensure that the information provided is accurate, but information may become outdated as legislation and new government announcements are made. Individuals must not rely on this information to make a financial, investment or legal decision as it does not take into account their personal circumstance. Before making any decision, we recommend you consult a licensed adviser or legal practitioner to take into account your particular objectives, circumstances and individual needs.