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Technical Update: Estate Planning and Super, how to get it right! – November 2015

We are now in an age where the average superannuation balance continues to increase and represents an ever increasing proportion of the total benefits passing to beneficiaries on death. Superannuation assets do not form part of an Estate, so how can we work to ensure super is dealt with in a cohesive manner with the rest of the Estate’s assets?

Binding Death Benefit Nominations (BDBN)

BDBNs are effectively the Will for your superannuation. Ensure your clients clearly understand the importance and implications of these forms, and ensure they are executed effectively. Does the Trust Deed allow for a binding nomination? Does the nomination lapse? Does the Trust Deed have special provisions regarding binding nominations (i.e. must they be “presented” to the Trustee)

Superannuation legislation dictates that these forms lapse every 3 years, however SMSFs are excluded from this restriction (providing the Trust Deed does not interfere). Most modern SMSF Trust Deeds allow for non-lapsing BDBNs.

Reversionary Pensions v BDBN

A reversionary pension means that, on the death of a member, their pension immediately passes to the surviving spouse, and they are essentially deemed to have held this pension since its commencement.

A pension can only be established as reversionary on its commencement and takes precedence over a BDBN.

Blended Families and Super – how to provide for spouse and ensure your kids also benefit

A common scenario is where a SMSF member wants to provide for their current spouse, but they do not want their spouse’s children to ultimately benefit (when their spouse subsequently passes).

Pension contracts can be useful mechanisms to provide:
a) certainty of income to their spouse, and
b) a residual capital balance to your children (not your step children).

These contracts can only be put in place at the commencement of a pension.

Living Inheritance

Our clients really enjoy the concept of a living inheritance, allowing them to provide for their children’s future while they are still alive. We often speak with clients about making non-concessional contributions to their children’s superannuation fund. This allows the “inheritance” to spend more time in the super environment (benefiting from tax concessions) and also means their children cannot touch the inheritance until they have retired.

Anti-Detriment News

Recent announcements by the Federal Government indicate that anti-detriment payments will be scrapped as part of upcoming tax reforms. Anti-detriment, introduced by Paul Keating, is a mechanism that allows the beneficiaries of the deceased to increase any death benefit by an amount which approximates the tax paid on contributions over the deceased’s lifetime. The extra payments must be funded separately from the member’s superannuation balance (most commonly from a reserve).
Anti-detriment was a useful mechanism to create an extra death benefit payment amount and also create large tax deductions (and in most cases, tax losses) which the remaining super fund members could also benefit from.

Practical Implementation – tips and traps

More Information
If you need assistance with end of financial year strategies, please do not hesitate to email us or phone (03) 9886 0800.

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