IS YOUR ESTATE STILL DOING WHAT YOU THINK ITS DOING? HOW THE COULD IMPACT WHERE YOUR MONEY GOES AT DEATH PETER HOGAN HEAD OF EDUCATION AND TECHNICAL TRANSFER BALANCE CAP INTRODUCTION 2 1
General Transfer Balance Cap (TBC) TBC limits the amount of capital an individual can have in retirement phase from 1 July 2017 This in turn limits a fund s tax exempt earnings derived by assets supporting income streams $1.6 million for 2017/18 and will be subject to indexation (CPI) in increments of $100K Only applies to retirement phase income streams. Excludes: Transition to retirement income streams (TRIS) Age pension Overseas pensions 3 TRANSFER BALANCE CAP Credits to TBC Market value of existing account based Retirement Phase income streams at 30 June 2017 Market value of new account based RP income streams from 1 July 2017 Value of reversionary pension at time of death credit arises 12 months after Other death benefits RETIREMENT PHASE INCOME STREAMS 4 2
Death Benefit Changes The biggest impact of all 5 DEATH BENEFIT MUST BE CASHED One or more of the following forms: a lump sum (interim + final), or one or more pensions that are in retirement phase ATO position: Cannot remain in accumulation phase Cashing requirement only met where income stream continues to be paid Death benefits in excess of TBC must be paid as lump sum death benefits 6 3
Reversionary income streams Reversionary beneficiary Income stream automatically reverts to the nominated reversionary beneficiary On death of original superannuation income stream recipient Reversionary beneficiary nominated at commencement of original income stream Superannuation income stream does not cease but is a continuation of original income stream What about BDBNs where income stream is also specified? 7 Reversionary income streams The value of the credit to the transfer balance cap of the surviving spouse is the value of the deceased s pension account at the date of their death Credit arises in reversionary beneficiary s transfer balance account either: 12 months from date of death of original pensioner if this day is on or after 1 July 2017 Later of 1 July 2017 or 12 months after first becoming payable if death of original pensioner is before 1 July 2017 8 4
DEATH BENEFIT PENSIONS ASSESSED AGAINST BENEFICIARY S TBC DIED IN ACCUMULATION PHASE POST 30 JUNE 2017 DIED IN PENSION PHASE POST 30 JUNE 2017 TBC CREDIT: VALUE AT COMMENCEMENT NO REVERSIONARY PENSION? YES What about reversionary TRIS or CDBIS? TBC CREDIT: VALUE OF PENSION AT TIME OF DEATH (CREDIT 12 MONTHS AFTER DEATH) 9 Case Study Noah & Jenny 10 5
Noah and Jenny Commenced 2 x $1.5M reversionary ABPs in 1 July Assets of the fund: Commercial property $2.6M (leased to family business) Cash $400k Jenny dies 1 Oct 2017 and her ABP reverts to Noah Transfer balance account credit of $1.5M on 1 October 2018: $1.4M excess Option 1 Commute $1.4M from Jenny s pension and pay to Noah as lump sum death benefit Option 2 Commute $1.4M from Noah s ABP and roll back to accumulation phase to create cap space 11 Reversionary beneficiaries If excess transfer balance account is to occur, then: Can commute in full/part recipient s own income stream back to accumulation phase within 12 month period & Take reversionary income stream in full OR Take excess created by reversionary pension over transfer balance cap as superannuation lump sum & Excess cannot be retained in accumulation 12 6
What problems can you see for Noah & Jenny? 13 Problems for Noah & Jenny Circumstances to consider Large lumpy asset Need to retain asset in superannuation Unwillingness to sell lumpy asset Limit on value of assets which can support reversionary pension payable to Noah 14 7
Other Death Benefit Issues 15 Binding death benefit nominations Income stream payable as result of death of a member other than reversionary nomination Typically done using BDBN Generally requires decision of trustee to pay income stream to beneficiary not automatic Will count towards recipient s transfer balance account when commenced When combined with other superannuation income streams of recipient there is an excess transfer balance account What happens? 16 8
Binding death benefit nominations Excess over transfer account balance of recipient cannot be taken as a superannuation income stream Excess must be taken a superannuation lump sum & cannot remain in the superannuation system as part of accumulation account 17 Binding death benefit nominations Need to consider the timing of credit to TBC Review your trust deed How much involvement do the trustees have? Should you direct your super to your estate instead? Are testamentary trusts an alternative? Importance of integration of trust deed rules & Wills 18 9
Prescribed period removed Death benefit retains tax status Lump sum withdrawals outside prescribed period remain tax free Death benefit pensions can be rolled over Not treated as contribution Tax treatment retained Must remain in retirement phase Reporting 19 Wrap Up Changes to planning for where your super goes on death is the big unidentified issue New pension limitation rules change everything Need to reconsider your planning now Applies to everyone regardless of age who has either superannuation savings or insurance in super 20 10
Association Trustee Knowledge Centre For more information, education and resources to assist you manage your super with confidence, visit the Trustee Knowledge Centre. trustees.smsfassociation.com 21 ABOUT About the Association The Association is an independent organisation focussed on informing, educating, empowering and advocating for all Australians who self manage their superannuation. We believe that every Australian has the right to control their own destiny, and to create a good quality of life in retirement. Further to that, we believe better outcomes arise when professional advisors and trustees are armed with the best and latest information, especially in the growing and sometimes complex world of s. Disclaimer This presentation is for general information only. Every effort has been made to ensure that it is accurate, however it is not intended to be a complete description of the matters described. The presentation has been prepared without taking into account any personal objectives, financial situation or needs It does not contain and is not to be taken as containing any securities advice or securities recommendation. Furthermore, it is not intended that it be relied on by recipients for the purpose of making investment decisions and is not a replacement of the requirement for individual research or professional advice. Actions, reactions and interpretations cannot be relied upon. The presentation is purely the opinion of the presenter on the day and this presentation is record of that opinion. This presentation was accompanied by an oral presentation, and is not a complete record of the discussion held. No part of this presentation should be used elsewhere without prior consent from the author. 2017 Association Pty Ltd 22 11