Wide ranging superannuation reforms have now passed through both houses of parliament with the majority of changes taking effect from 1 July 2017. These reforms will have a significant impact on most superannuation members, but particularly for those who operate their own self-managed superannuation fund (SMSF).
As you know, SMSFs must have an executed trust deed to set out the rules of the fund. This trust deed, together with superannuation legislation, form the fund’s ‘governing rules’ and dictates how the fund can operate. As a result of the significant changes to our superannuation system, we are advising our SMSF clients to update their fund’s existing trust deed to accommodate the new, more restrictive legislation. Updating the rules of your fund will ensure that you can continue to leverage the strategies available within self-managed superannuation.
Benefits of an updated deed
In addition to accommodating the superannuation changes from 1 July 2017, the trust deed that we recommend includes some important strategic and estate planning features including:
- Flexibility in making contributions – the rules of the fund have been updated to ensure all forms of authorised contributions can be accepted. The deed also provides an opportunity for contributions to be held by the trustee for a short period of time and allocated at a later date. This can provide both tax benefits to an individual through contribution reserving but also potentially benefits making additional contributions due to the value of a member’s total superannuation balance at the end of a financial year.
- Flexibility in payment of income streams – the trust deed allows for the payment of various income streams from within the SMSF by establishing the pension as a special rule of the fund. This is important, as over time the member may want to alter the terms and conditions of the income stream, such as adding or removing a reversionary beneficiary. This may occur without any loss of existing entitlements, including Age Pension.
- Creation of a ‘paramount document’ – the trust deed introduces a concept to allow for the member to decide which document they want to take precedent in the event of their death. In many instances, conflicts can exist between death benefit nominations and pensions that provide uncertainty around the payment of death benefits. By establishing the paramount document through the rules of the fund, it removes any uncertainty for the trustees in the event of a member’s death.
- Ability to create various death benefit instructions – the updated trust deed will allow a member to dictate the level of flexibility or control they want in the payment of their death benefits. The rules of the fund allow for a binding death benefit nomination (including non-lapsing), non-binding death benefit nomination, along with SMSF Will which introduces specific instruction for the payment of death benefits. This may include specific instructions for different superannuation interests of a member, specific assets to be transferred, etc. All death benefit nominations allow for cascading decisions in the event that a nominated beneficiary pre-deceases the member.
- Estate planning flexibility with transfer balance cap – the rules of the fund provide complete flexibility for a surviving beneficiary to choose how death benefits are to be paid to them in the event of a member’s death and to be able to take the necessary steps to comply with their own transfer balance cap within the prescribed timeframes. For example, this may include commencing a death benefit income stream, in addition to undertaking a rollback, in part or full, of the beneficiary’s existing pension to ensure that they do not breach their transfer balance cap.
- Flexibility in fund earnings methodology – the rules of the fund allow the trustee to adopt different methods to attribute fund earnings. This can be beneficial where the trustee wishes to adopt an investment reserve, or an alternate approach to allocating income for member specific investment strategies as a result of the prohibition for an SMSF to claim tax exemption using the segregated method where a member is in excess of $1.6 million.
- Guardians for fund members – the governing rules allow for a member to appoint a fund guardian so that upon the death of the member, the guardian will police the payment of the member’s death benefits to ensure that they reach their intended recipients. This is particularly beneficial for blended families (multiple marriages), or where there are special needs recipients (e.g. individuals who may be financially irresponsible).
For a limited time, Marsh & Partners are able to offer a discounted rate of $495 (incl. GST) to update and upgrade your SMSF deed. Our standard price for SMSF deed upgrades is usually $695 so this represents a significant saving. You can contact our specialist SMSF advisors for further advice on 07 3023 4800 or at firstname.lastname@example.org
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GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. We suggest you obtain specific financial advice from a licensed financial advisor.