Speaking at Class Connect’s 2019 conference on Tuesday, I Love SMSF director Grant Abbott said while momentum was still with industry super funds from a public perception perspective due to their successful marketing campaign around returns, significant economic and sharemarket declines could see this trend reverse.
“From my perspective, I think there’s a lot of opportunity if we go into recession, then the industry funds go down and they can’t talk about their fantastic returns,” Mr Abbott said.
“Every time they go down, I can tell you we actually get an uptick in terms of new members and they are particularly coming through from Gen X, those people who are now 35 to 55, are now starting to look to retirement and they’ve built up a bit of superannuation.”
At the same time, this generation was likely to inherit significant wealth from the passing of their SMSF trustee parents, making robust estate planning within the generations the next key skill set for SMSF professionals, Mr Abbott said.
“We’ve got $300 billion that’s going to be passed out through death benefits over the next 15 years, so we all need to become estate planning geniuses,” he said.
“We also need to start thinking a lot more broadly, and not everything is about SMSFs — we should be using bucket companies, family trusts and not seeing any money going from SMSFs into an estate, because as soon as it goes in there, the lawyers challenge it.”
Mr Abbott said that while popular, binding death benefit nominations were also a less solid estate planning option for trustees due to the rising incidence of legal challenges.
He nominated testamentary trusts built inside the SMSF as a good option as well as reversionary pensions and binding death benefit directions.
“Family allowance agreements to me are also a very special tool, where instead of ad-hoc support, we have regular monthly income coming down to the family,” Mr Abbott said.
“Rather than doing it individually, if we do it to the whole family with evidence by agreement, there’s a good chance depending on the circumstances that at the death of that person providing financial support, all of that family will be financial dependents and escape death duties.”
Have there been any studies that project the amount the current baby boomer generation will spend on aged care over the next 20-30 years?
Yes there will be a significant transfer of wealth to the next generation, but the aged care costs will reduce those billions.
Every time there is a large market correction we see an uptick in SMSF commencement about 6-9 months later when people have reviewed their superannuation statements. Unfortunately in the past this was often a poor knee-jerk reaction as some people complained to their friends, planner or accountant and were told an SMSF was an option (not necessarily advice).
Many ended up in Cash for years or fodder for OTP property spruikers as a result of setting up funds without having a plan in place other than “I could do better myself”. I hope that when it happens again that there is now enough education and regulation out there to help with proper planning.
There is as Grant says a huge inter-generational transfer of wealth coming and most 40-55 year olds now have 20-30 years of contributions. This will be their largest asset even outstripping the equity they have in their home (huge mortgages) and many will want to take control of that asset.