Townsends Business & Corporate Lawyers special counsel Brian Hor says for clients who have already reached their $1.6 million transfer balance cap for tax-free pension phase purposes, there’s no limit to what they can put into super in terms of their accumulation balance.
“So using an LRBA is potentially a great way to increase their accumulation balance for estate planning purposes,” Mr Hor said at an event in Sydney.
“For example, [this could help the client] to make a tax-free lump sum death benefit payment to a tax dependant or to pay tax effective death benefit pensions to SIS dependants, subject of course to their own respective transfer balance caps.”
This kind of strategy can also help the client make lump sum payments to the member’s deceased estate or fund one or more tax effective discretionary trusts set up under the will, Mr Hor said.
He said if a client is planning to enter an appropriate LRBA arrangement, SMSF practitioners should encourage them to do so as soon as possible so that it’s set up before the new LRBA amendments are passed.
“Once the new rules have started, you’ll want to maximise the client’s non-concessional contributions before the start of the financial year in which an LRBA amount is to be counted towards their total superannuation balance,” Mr Hor explained.
He also stressed that any SMSF practitioners advising clients to set up LRBAs should carefully consider the client’s ability to repay the loan without the ability to make non-concessional contributions.
“Please do the numbers to make sure that any new LRBA arrangements can be sustained based on whatever further contributions they are able to make and earnings on the asset of course.”