Tim Miller, head of technical and education for Smarter SMSF, said at the recent SMSF Adviser Technical Strategy Day in Brisbane that from an estate planning point of view, contributions and recontribution strategies are a good way to reduce tax on death benefits.
“We want to reduce that tax as much as possible so those strategies work nicely. Doing it with a spouse doesn’t always move as nicely as we want, subject to our family status,” he said.
“We always have to plan for the second death benefit so when we’re talking about contribution strategies in a two-member fund, we always need to be planning for that second death benefit to ensure that we’re doing the right thing.”
Miller said it is important for advisers to talk to their clients about rebalancing member accounts as a strategy to equalise money, especially with the proposed $3 million threshold.
“That $3 million cap could be a reason that you’re rebalancing. Another reason could be for ECPI purposes,” he said.
“There are lots of reasons why we would strategically consider rebalancing the money into super but as I said, for all the pros there are also cons, like broken relationships and poor estate planning.”
Miller gave an example of a couple who had separated and wanted to split their superannuation. The husband was willing to sign a separation declaration to be able to split his superannuation from himself to his wife.
“The wife told me that her husband thought that by signing a declaration to say that they had separated meant they could rebalance their reasonable benefit limits back in time and take the money from his super and put it across to her and they could still live in the same house and just sleep in separate bedrooms, and be separated for super law purposes,” he said.
“That’s not really how the law is built. It’s not around you trying to manipulate the taxation of various pieces of legislation.”
It is, he said, the responsibility of advisers to tell clients whether these types of strategies are possible.
“Even child contributions. Are they the passengers you want to take for your clients, from a contribution point of view, if they’re going to create more issues further down the path?” he asked.
“It’s really important to firstly know the list of contribution strategies that are available and then note all of your election requirements and things that you need when undertaking any contribution strategies, and finally, work out whether those strategies are viable or beneficial for your clients.”
The SMSF Adviser Technical Strategy Day will be moving to Melbourne on 22 October, and Sydney on 24 October. Tickets are still available for these events.
