subscribe to our newsletter
SMSFs warned on conflict risks with multiple documents

SMSFs warned on conflict risks with multiple documents

caution, warning on conflict risks
Miranda Brownlee
30 January 2018

With some SMSF clients now requiring multiple estate planning documents due to the transfer balance cap, conflicts can arise where there is no indication of what document takes priority, warns an industry lawyer.

Hill Legal principal Chris Hill said since the introduction of the reforms, if a member who survives the death of another member in the fund is going to receive an excess transfer balance amount, then it is compulsory to cash that excess benefit amount out of the fund.

Assuming that the surviving member cannot rollback any existing phase income streams or they’re in accumulation phase, they can’t receive any more than their transfer balance cap, Mr Hill said in a podcast with the SMSF Academy’s Aaron Dunn.

“What we’re going to see moving forward with many clients is some money reverting to the survivor and excess balances coming out of the fund,” Mr Hill explained.

“You’re going to need to have clients complete a binding death benefit nomination that will deal with excess balances and a reversionary pension for non-excess balances.”

This means that for some client multiple documents will need to be prepared, and there could be potential conflicts between documents if it isn’t specified which document takes priority.

SMSF practitioners may therefore want to discuss incorporating what’s called a ‘paramount document’ into the deed, which sets out which documents have priority and how benefits are to be distributed or dealt with, Mr Hill explained.

Mr Dunn said that a paramount document provides certainty as to whether the death benefit nomination or the reversionary income stream takes precedent, particularly where there may be some dispute or inconsistency.

“When push comes to shove, if you don’t have any form of definitive outcome, well then what one is going to take precedent? You may have to go back to the deed and reference what one would actually take place in that circumstance,” said Mr Dunn.

 

 

SMSFs warned on conflict risks with multiple documents
smsfadviser logo
join the discussion

What do you plan to do in response to the new adviser education standards?

SUBSCRIBE TO THE
SMSF ADVISER BULLETIN

Get the latest news and opinions delivered to your inbox each morning

In this month's issue:

  • Time wrap
  • The tech bull run
  • From hobby to passion
  • Golden Years
  • An untimely reminder
  • Why change is so difficult
  • Key Strategies for equalising super