Changing SMSF landscape makes estate planning even more important
SMSF members need to brace themselves for constant change, says a leading legal expert, and estate planning should be a priority despite uncertainty surrounding the current legislative proposals.
Mitchell Markwick, partner – superannuation for HLB Mann Judd Wollongong said as the national superannuation net worth continues to rise, there is more likelihood that future governments will continue to “tinker” with the system and SMSFs will have to keep pace with any changes.
“As the rules and regulations governing the operation of SMSFs evolve, it’s important for members and trustees to understand the legislative and regulatory framework they operate within,” Mr Markwick said.
“The government has long made it clear that superannuation isn’t intended to be an estate planning tool – it was primarily designed to take pressure off the national welfare system and provide benefits to members at retirement or death; not as a tool in the transfer of intergenerational wealth.”
Mr Markwick said changes to the superannuation system are inevitable and with an ageing population, and the average age of SMSF members close to 62 years, there needs to be some certainty in transitioning from one phase of life into the next.
“The recent proposal by the Federal Government to introduce a new cap which could see earnings on super balances above $3 million taxed at an additional 15 per cent to a total concessional rate of 30 per cent, rather than 15 per cent, has raised the ire of many,” he said.
“While some argue the intention is to try to start limiting the size of super balances in order to raise tax revenue, this particular proposal in its current form has a number of fundamental flaws - specifically, the taxation of the movement in the market value (or the unrealised gain) of an asset.
“Once that asset is sold, people will still be required to pay capital gains tax on the sale once actually sold, therefore triggering a double taxation arrangement.”
Mr Markwick said under the current taxation system this should not be considered a fair and equitable proposal.
He said although planning for retirement and beyond is important for SMSF members, he believes the best strategy for now is to “play by the current rules applicable today”.
“While there is always likely to be draft legislation proposed for future financial years, members need to focus and ensure they are administrating a fund based on the current rules,” he said.
“Estate planning plays a critical role in growing superannuation balances, and yet, its importance is widely underestimated.
“It’s imperative that SMSF members discuss their estate plans with their accountant/ adviser and also engage an estate planning specialist to draft the appropriate documents.”
Mr Markwick said estate planning is part of succession planning and SMSF members need to ensure they have the appropriate documentation in place, including a current and up-to-date trust deed (for SMSFs), a valid binding death nomination (if appropriate), Power of Attorney, enduring guardianship, and a valid Will (possibly testamentary, if relevant).
“In the event an SMSF member becomes incapacitated or passes away, this documentation will ensure the smooth and ongoing operation of an SMSF,” he said.
“With the knowledge changes to superannuation are inevitable, SMSF members should use the lead-up to 30 June to educate themselves and plan accordingly. They should be making the most of current superannuation rules, including those pertaining to contribution caps and indexation of caps, transfer balance and total super balance caps.
“Ultimately, the onus of responsibility lies with SMSF members to ensure they are utilising existing rules as much as possible, while being cognisant that these same rules are subject to government tinkering.”
