9/02/2018. How Estate Planning has to change. Session overview. SMSFs by asset size 12% Peter Burgess

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1 How Estate Planning has to change Peter Burgess General Manager, Technical Services and Education, SuperConcepts Session overview Rule changes Is TBA control in compression trusted hands? SMSFs by asset size 30% 12% 25% 20% 15% Percentage of SMSFs with individual member s in excess of at 31 March 2017* *SuperConcepts data (sample 16,000 SMSFs) 10% 5% 0% < $50k $50k - $100k $100k - $200k $200k - $500k $500k - $1m $1m - $2m $2m - $5m $5m - $10m > $10m Source: ATO Self-managed superannuation funds: A statistical overview 2015/ % 1

2 Excess at 30 June 2017 Accumulation 15% v MTR Cash out? Pension New accumulation Accumulation BDBN for the new accumulation? Is control in trusted hands will BDBN be executed? Use of corporate trustee with the surviving spouse sole director/shareholder? Non-reversionary does the death benefit nomination cover the accumulation? Reversionary s combined wealth in excess of TBC 9%* *SuperConcepts data 2

3 Reversionary s Reversionary Reversionary rules 1. Pension still reverts even if exceeds TBC 2. TBA credit deferred 12 months from starting day * 3. TBA credit value determined at starting day * 4. Reversionary must be cashed if commuted Are life insurance proceeds received after date of death counted? Not counted at date of death from an accounting perspective cash accounting But when does entitlement arise from a legal perspective? 5. S307-5(3) repealed once a death benefit always a death benefit *Dependant beneficiary must be automatically entitled under the governing rules of the fund, or the rules of the, to receive an income stream on the death of the member. Which should be commuted and when? On or immediately before 12 month anniversary Reversionary 15% v MTR 3

4 Surviving spouse is commuted BDBN? Reversionary Accumulation Reversionary s - what action is required now? Q. The surviving spouse will decide how the excess will be dealt with. OK? Child s? Can a non-reversionary be changed to a reversionary? ATO* It will depend on the terms on which the accountbased is payable, the fund s trust deed or governing rules and any other restrictions imposed by law. the ATO does not accept that a non-reversionary can be made reversionary after the death of the er member. *NTLG super technical sub-group, March

5 Varying the terms of an existing agreement? Yes If governing rules expressly provides so and there is no express term of the which prevents such a change By deed or written instrument between the member and the trustee. Note: Variation in the reversionary status is likely to cause the to lose its grandfathered status for Centrelink purposes. TRIS v AB Can Jay Jay s revert to Glory? Jay Jay, 62, is considering working less hours and transitioning into retirement. Assume Jay Jay commences a Age 41 BDBNs directing benefits to be paid as a death benefit? SMSF account = $2.2m BDBN in place directing the benefit to be paid to Glory as a death benefit? Accumulation 5

6 Do child s help? Child commenced on or after 1 July 2017 and deceased had no TBA General TBC or proportion of the general TBC that corresponds to the child s share of the deceased s super s What if amount up to TBC is paid to Glory as a death benefit and ($600k) is paid to Joe and Matty as child s? Accumulation Child recipient, deceased had no TBA Matty and Joe s TBC Glory Matty Joe Child commenced on or after 1 July 2017 and deceased had a TBA Child TBC = Amount funded from deceased member s retirement phase *No child can be paid from accumulation phase s Jay Jay commences an AB with and retains the in the accumulation phase Accumulation Jay Jay dies 2 years later AB = $1.9m and accumulation = $700k 6

7 Allocation of reserves to an existing Are reserve allocations counted against TBC? SIS Reg 1.06(1)(a)(ii) can not be added to way of contribution or rollover after the has commenced Policy intent of TBC is to cap the amount transferred to the phase. Anti-detriment reserve Pension $400k Accumulation 5% of $2M = $100K Allocated on a fair and reasonable basis and less than 5% of member s total in the fund Structured settlement contributions made before 1 July 2017 Pension 1 Pension 2 Pension 3 Structured settlement contribution TBA DR = nil TBA as at 1 July 2017 Structured settlement contributions made before 10 May 2006 Must arise from: A payment made under a written settlement agreement of a claim for damages for personal injury, or A workers compensation claim. Must be certified by two legally qualified medical practitioners. Must be contributed within 90 days unless contributed before 10 May Planning ahead Husband and wife, both age 60, commence reversionary AB s on 1 July 2017 each with $900k no accumulation s Both require $60k per annum (min = $36k) Husband dies 5 years later with a = $846k Wife s TBA inclusive of husband s reversionary (payments above minimum taken as payments) $1.746m* Wife s TBA inclusive of husband s reversionary (payments above minimum taken as partial commutations) $1.622m* *Assumes 6% net return per annum. 7

8 Event based reporting Relaxed reporting rules for SMSFs Annual reporting cycle for many SMSFs could be 22 months before some commutations are reported Reversionary s need to identify the reversionary beneficiary's available cap space The content of this presentation has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you need to consider (with or without the assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances. You should obtain a copy of the relevant Product Disclosure Statement (PDS) before making a decision to invest in any financial product. Any advice in this presentation is provided by SMSF Administration Solutions Pty Ltd, ACN , AFSL No which is part of the AMP group of companies. 8