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Top 5 things SMSF trustees and members should know about their Deeds

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Your superannuation deed along with the superannuation laws form the governing rules that self managed super funds (SMSFs) need to operate by. The introduction of the $1.6 million transfer balance cap (TBC) and new transition to retirement income stream (TRIS) rules are a ‘game changer’ for SMSFs when discussing benefit payments and estate planning.

With the new super rules in effect as of 1 July 2017, now is the right time to review if your deed needs to be updated to deal with the new laws and strategies that you may need to implement.

Read the deed

The first step in reviewing your superannuation deed will be to read it. Deeds are legal documents which can be complex to read, so you may want help from an advisor with this.

It is likely that most deeds will not result in a breach of superannuation laws and would provide the trustee with powers to comply with changes to relevant tax and superannuation laws.

The next step would be to review the deed in consideration with your own circumstances. For example, a common scenario may be a restrictive deed that only provides the trustee with discretion to pay death benefits. This means that if a member of that SMSF wanted to create a binding death benefit nomination, it would be irrelevant due to the deed’s governing rules.

In any event, deeds which are clearly out of date will need to be amended as soon as possible.

Deeds post 1 July 2017

Post 1 July 2017, there are many approaches and strategies that will differ from the past and it is essential that your SMSF deed does not restrict you in anyway. You should consider the following five points:

1.  Paying death benefits

The $1.6 million TBC now restricts how much can be kept in super on the death of a member. This is crucially important as when a member dies, their TBC dies with them. SMSF members should review their estate planning and further review their deed for the following:

  • Does it allow for binding death benefit nominations (BDBN)?
  • Does the deed prescribe for BDBNs to lapse every 3 years when the law does not?
  • Does it consider the appropriate solution when there is a conflict between a reversionary pension and a BDBN and which will take precedence?

2.  Reversionary pensions

Reversionary pensions are pensions which continue being paid to a dependant after your death.  Under the TBC, reversionary pensions will not count towards a member’s TBC until 12 months after the date of the original recipient’s death. Importantly, the transfer of the pension from the deceased to the new recipient will count towards the TBC. The value of the credit to the TBC will be the value of the pension at the date of death, not the value after 12 months.

The complexity of reversionary pensions is increased and deeds should be reviewed to consider:

  • Does it allow for a reversionary pension to be added to an existing pension or are there restrictions?
  • Should it automatically ensure that a pension is reversionary so that it is paid to a surviving spouse?

3.  Pensions

The TBC also has implications for strategies in commencing pensions and making benefit payments. Trust deeds may need to be reviewed for:

  • Ensuring that commutations are able to be moved into accumulation phase rather than being forced as lump sums out of superannuation.
  • Are there any specific provisions relating to the TBC? There may be value in ensuring a deed restricts pensions from being commenced with a value greater than the TBC.
  • Are there provisions which detail where commutations must be sourced from first?
  • Are there restrictive pension provisions that the trustees must comply with?

4.  Transition to retirement income streams

Tax concessions for TRISs where the recipient does not have unrestricted access to their superannuation savings (known as meeting a condition of release with a nil chasing restriction) have also been removed. Trust deeds may need to be reviewed for:

  • Does the deed allow for the 10% max benefit payment to fall away once a nil condition of release is met?
  • Does the deed deal with a TRISs character when a nil condition of release? (Does it convert into an account based pension?)

5.  How can CRH Law help?

CRH Law can help you understand how the new laws may impact you and your family by reviewing and amending your deed as required. Please feel free to call us to discuss your requirements, especially regarding issues arising out of the latest changes to the super laws.

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