Twelve SMSF Resolutions for 2012


A Happy New Year to all my readers.

The New Year provides us with time to think about and assess goals for the coming year.  Whether we actually achieve them or not, well that’s a whole different matter…

I have provide below 12 resolutions that you may with to consider in either setting up or running a Self Managed Super Fund:

1. Join more than 850,000 Australian’s already taking control of their retirement using a SMSF

Call me biased, but I truly believe SMSFs are the best superannuation vehicle in Australia as they provides you with a real sense of ownership in making decisions about your retirement savings.  SMSFs also provide you with greater choice in how you can invest, whether it be via property, shares, cash, fixed interest or even artwork and collectables.  It’s not about thinking you can “do it better yourself”, but in my view it is more about the greater engagement that you have with building your retirement nest egg.  Watch my videos on Thinking about Self Managed Super and Setting up a SMSF to understand more about the benefits of SMSFs.

2. Does my trust deed need to be updated?

It never ceases to amaze me about the lack of education that is provided around the importance of the fund’s deed (I commonly refer to the trust deed as the ‘book of rules’).  Far too often I see SMSFs with trust deeds that are not only out of date, but in some circumstances mean that the fund is not a Self Managed Super Fund (as the rules haven’t been updated to align with changes to superannuation law).  Only last year I saw a fund which had not been updated since it started in 1982!!

Your SMSF is no different to your car – to run at its optimum, it needs be serviced.  As super and tax laws change, your trust deed needs to be serviced to accommodate these amendments and take advantage of strategies.

Your resolution may be to speak to a SMSF Specialist about whether your deed needs an update!!

3. Should I really have a corporate trustee instead of individual trustees?

With only 1 in 10 SMSFs over the last couple of years being setup with a corporate trustee, many people will probably ask “why would I have a corporate trustee instead of individual trustees”?  Whilst having a company act as trustee can be more costly, it can provide a range of administrative and estate planning benefits, including the ability to run a single member fund (as a sole director).  Further details of some of these important considerations can be found on the ATO website.

I’m obviously not the only SMSF professional within the industry with this view…  take a look at the results of the current poll on the SMSF Professionals page on LinkedIn:

It was also acknowledged within the Super System Review that corporate trustees were a superior trustee structure, however the choice of trustee should always rest with the individuals.  You should think about your own circumstances as to when a corporate trustee may be a more suitable option for you.

4. The year of the property gear?

With clarification of the limited recourse borrowing rules (section 67A & B, SIS Act) by the ATO in September 2011 (SMSFR 2011/D1), there now appears to be greater scope for SMSF trustees to consider the use of borrowing to acquire property.  I use the words “year of the property gear” because I expect this area to grow significantly in 2012 as the ATO ruling provides some much-needed clarity on the ability for a SMSF to make improvements to an asset where the fund uses its own resources.  Add to this the clarification on what qualifies as a single acquirable asset, we will see a much broader range of investors looking to acquire property through a SMSF.

The benefits of property in super can be significant, in particular the tax exemption that can be obtained on any capital gains once you reach retirement (or transition to retirement).  With the ability to use two sources or inflows to meet repayments (1. rent and other fund income; and 2. contributions), it can allow for an accelerated repayment strategy to maximise the return you can achieve from the investment.

Refer to my example presentation on Slideshare to understand the analysis further about whether property investing within a SMSF is a suitable strategy for you?

5. Should I maximise my concessional contributions for the current year?

The 2012 financial year is the last year of the 5 year transitional concessional contribution cap that was introduced with the Simpler Super reforms from 1 July 2007.  Whilst the Labor Government halved the contribution cap in 2010, we still await details of the proposed law changes to extend this cap beyond 1 July 2012 for those over 50 with account balances under $500,000.

From 1 July 2012, the current concessional contribution cap will reduce to $25,000 for everybody regardless of age.  This is a reduction from $100,000 that was available only 3 years ago.

You can only presume that the Labor Government will look to increase contribution caps once they have delivered on their commitment to bring the budget back to surplus in 2013.  The cynic in me says we see announcements in the lead up to the next election!!

6. I might need to review my contributions to ensure you don’t get caught with ECT??

Excess contributions tax (ECT) has been a growing issue as people look to maximise on the benefits of superannuation.  With many cases of inadvertent breaches falling on deaf ears with the ATO, it is absolutely critical that you appropriately manage your contribution levels each financial year.

We have seen an announcement by Government to allow a ‘once-off’ refund of up to $10,000 for breaches of the concessional contribution cap, but I wouldn’t be relying on that as a management tool to deal with excessive contributions.  Take an active role in tracking yours (or your clients) contributions.

7. I’m thinking about transferring listed shares into my SMSF? You need to do so before 30 June 2012!!

One of the recommendations from the Super System Review was to prohibit the ability for individuals to be able to transfer existing shares held personally into a SMSF (by way of off-market transfer).  This recommendation was ultimately supported by Government within the Stronger Super reforms and is intended to become law from 1 July 2012.

Therefore, you have a small window remaining to look at this strategy to transfer listed shares you own into a SMSF.

8. Do I qualify for the co-contribution this year?

The Government within their Mid-year economic and fiscal outlook (MYEFO) 2011-12 announced changes to reduce matching entitlement from $1 for $1 (100%) up to $1,000 to 50% for the 2012-13 financial year.

For income earners between $31,920 and $61,920 for 2012, you can receive a matched amount from the Government based on your qualifying entitlement.  See the ATO website for further details of eligibility.

9. How much pension can I draw this financial year?

With financial markets still languishing, individuals drawing an income stream have the ability to draw down a 25% reduced minimum pension for the 2012 financial year.  This means that if you minimum pension is ordinarily 4% (55-64), your minimum pension for 2012 is only 3%.  In the MYEFO, the government recently extended the minimum pension draw down relief for the 2013 financial year as well.

These rules apply to account based pensions, including transition to retirement income streams and market linked pensions.

View details of the minimum pension and reduced pension limits for the 2012 financial year.

10. What’s the most tax effective way to draw my pension for the financial year?

A controversial ruling issued by the ATO in July 2011 (TR 2011/D3), provided scope for a member who has retired to potentially take their benefits as a lump sum payment and have the benefits treated as a pension for the year.  This is beneficial where you may wish to receive an in-specie payment such as a transfer of shares or property from the fund.  This can also be beneficial for people under 60 who could have a withdrawn amount applied against the pension limit for the financial year but taxed against the lump sum tax rates.

See my previous article for further details.

11. Is my current death benefit nomination up-to-date?

What happens to your superannuation benefits in the event of death is not determined by your Will – it is based on the instructions that are left within a member’s death benefit nomination.  Unfortunately, not enough attention is spent looking at the important aspects of what can happen with super benefits when somebody dies.  This could include a pension, lump sum or combination of both, subject to the beneficiaries being tax dependants.

Within SMSFs, there are several options available to members subject to the fund’s trust deed. A member may wish to have no nomination (at all), have a statement of wishes (non-binding), or binding nomination.  The binding nomination may be lapsing (i.e. review and renew every 3 years) or non-lapsing.

12. I need to establish a comprehensive SMSF estate plan?

Simply having a death benefit nomination and a Will is not sufficient in this day and age with a range of associated risks that could derail how you ultimately want your benefits to be dispersed when you are no longer here…

It is important to not only think about the issues when you are no longer here, but address the ‘life risks’ such as if you lose your marbles!!  In my view, a comprehensive SMSF estate plan needs to intertwine the Will, death benefit nomination, Enduring Powers of Attorney, and Guardianship.  You should also consider within your Will the creation of testamentary trusts for nominated beneficiaries to help protect from marital, business and other risks that might expose your death benefits ending up in somebody else’s pocket!!

There they are…  Is there something there for you (or your clients) to consider reviewing or/and implementing for 2012?

Next Webinar on Super Death Benefits and blended families


With an increase in the number of blended families now in Australia, it is important to consider how to structure an appropriate and tax-effective financial result for all family members.

A lack of proper estate planning in this area could possibly lead to a loss of control of super benefits and ultimately end up in legal dispute.

The SMSF Academy is pleased to announce the next InPractice webinar, where in this one (1) hour session, our guest panelists, SMSF estate planning experts, Ian Glenister and Chris Hill will discuss and explore the common estate planning issues being confronted with blended families

Find out more and register for this webinar.

The malaise of the estate plan; there’s an elephant in the room!!


I am regularly astounded when confronted with clients with significant assets and wealth that they have no estate plan.

I’m not just talking about a Will.  Yes, it is an essential ingredient of an estate plan, but it is not a total estate plan.

Over the next twenty-five years, Australia will witness the greatest wealth shift that it has ever experienced.  The “Baby Boomers”, unlike their parents, have been a generation of wealth accumulators.  When they start dying, many without any semblance of an estate plan, it will be a Lawyer’s feeding frenzy due to lack of advice and planning.

Clients are enthusiastic about wealth accumulation – minimizing tax, negative gearing, planning for holidays, buying a new car, going to the beach, spending time with friends, going to he footy. BUT, what is to happen with all their accumulated wealth when they are no longer with us?

Like any Lawyer, I am averse to giving any form of guarantee. However one I will give, in writing if needs be – everyone dies!

Unfortunately, we are all confronted with our mortality. The good Lord brings us into this world but when we arrive we don’t have any notification of exactly when we will depart this mortal coil.

Why won’t clients confront the issue of estate planning? Is it an “Elephant in the room?” Apparently so, the vast majority of people don’t want to discuss it. It is too hard, takes too long or is too challenging or confronting.

It is easier for a client to decide to re-pot the pot plants, have the cat de-sexed or see a movie than consider establishing a well documented and definitive estate plan.

What is “an estate plan” anyway?

It is a documented guide to the orderly transition of wealth from one generation to the next in the most tax effective and asset protective manner possible. Drawn correctly it will eradicate any dispute between the proposed recipient of the assets.  This will potentially eradicate any erosion of the estate assets from the legal costs of a dispute.

Clients, particularly those with significant wealth, usually have a “primary financial advisor”.  Whether it is an Accountant or Financial Planner, clients seeks advice as to how to best manage their affairs during the “wealth accumulation” stage of their lives.

Off the clients go to their advisor…

The issue of asset protection and tax minimization is discussed with the client. This raises the issue of the well exercised discretionary family trust.  Real estate assets are purchased, business are established or acquired, income distributions are made amongst the family members to mitigate a tax liability.  This “Family Trust” idea appears fantastic to the clients.  The question has to be asked:

  • do they know how it all works?
  • What is a Settlor?
  • What or who is an Appointor?
  • What does this company do again?  Oh it’s the Trustee – huh?”

Now let’s tackle retirement planning issues for the client.  Self-Managed Super Funds (“SMSFs”) continue to grow. This is the way to go – or is it? It must be. SMSF reduces the client’s tax and only pays a miserly 15% tax on its earnings, 10% on Capital Gains Tax during accumulation.  When the client retires it pays no tax. This is a marvelous revolutionary concept!!

The SMSF is established. The tax rate is great. All is going to plan except one of the members of the Fund is killed in a motor vehicle accident. What now?

Advisors are readily prepared to insist that their clients embrace such structures as Discretionary Trusts and SMSFs and for very good reason. But surely this is only half the job done?

Advisors are aware that clients can’t make provision in their Wills for Trust assets. They don’t own them. They don’t own the holiday house in the Family Trust. They don’t own the share portfolio in the SMSF.  Try telling that to the clients. The response – “… of course it’s mine I paid for it!!!”

The clients proceed through life ignorant of the fact that unless the succession for Discretionary Trusts or SMSFs is in place they will leave a potential massive problem to the next generation.  Surely they are entitled to know what should be done?

An advisor typically travels with the client throughout their “financial life.” They are there to protect the health and well-being of their client’s financial affairs.  Is it too much to expect that as well as supporting wealth growth and other strategies the Advisor is also responsible for what will happen when the clients are no longer here?

I submit that the role of the Advisor means more than tax and wealth and retirement funding advice; the Advisor gets paid for this.  Some clients use the Advisor for their entire financial lives.

  • Why should a client die intestate?
  • At the time of the client’s death why should their Will be 30 years old?
  • Why didn’t the client have a Death Benefit Nomination for his SMSF assets?
  • Why did the client’s eldest son lose his inheritance to his Trustee in Bankruptcy?
  • How come the drug dependent child overdosed on the proceeds of her inheritance and died?

Can the responsibility of such events be leveled at the “primary financial Advisor”?

The issues of the second, third or even fourth marriage and blended families adds another dimension to the estate planning malaise.  Put together unhappy beneficiaries, a great deal of wealth and a Lawyer and eventually the Lawyer will find someone to blame.

Financial advice is more than saving tax and accumulating wealth for clients.  It is holistic. Making sure that a client has the appropriate estate plan I submit is also the responsibility of the Advisor.

“The clients don’t want to talk about it” responds the Advisor when challenged about their client’s estate planning issues, or “I intended to get something done for the client’s estate planning but I just didn’t get time”.

The client’s response –

  • “We are too busy and we have better things to do”.
  • “My wife doesn’t like to discuss it”.
  • “Let the kids sort it out when we are both gone”.

Manor from heaven for the Lawyers…

Conclusion:

It is the “primary financial advisors” role to do more than simply advise on the financial life of the client.

The “primary financial advisor” has a duty to their client to make sure that their client has a well documented estate plan and that it is reviewed on a regular basis. Not to make sure that this is the case I submit is a breach of the “primary financial advisor’s” duty of care to their client.

Don’t accept from the client “Yes, I have a Will…”

Is it the right one? Not all Lawyers have the knowledge and expertise to prepare comprehensive state plans. Find the right one for your clients.

If the client won’t acknowledge the estate planning “Elephant in the room” don’t simply give up.  Keep at the client until they do something. If they don’t protect your own back, then write them a disclaiming letter.  Retain the letter on your file. This letter may save a great deal of embarrassment and angst. It may even negate the necessity of writing the cheque for the liability insurance deductible one day.

This article was written by Ian Glenister, Legal Officer of The SMSF Academy and Principal of SMSF Specialist Legal Practice, Glenister & Co.  You can contact Ian on iang@glenister.com.au or visit www.glenister.com.au

Join us for our next FREE Webinar on SMSF Death Benefit Nominations


The appropriate structuring of a death benefit nomination for the payment of death benefits from a SMSF is one of the most important considerations a member can ever make.

This webinar looks at the types of death benefits nominations available to be used within a Self Managed Super Fund and discusses some of the key issues surrounding the different types of nominations that are available.

You can also view this video on The SMSF Academy YouTube Channel

This webinar will include a guest panelist, Mr. Ian Glenister, Solicitor and SMSF Specialist Advisor (SSA) of Glenister & Co.  Ian is a well-known SMSF and estate planning lawyer and co-authors his trust deed with Grant Abbott.  In addition, Ian & Grant were the creators of the “SMSF Will” and “SMSF Life Will”, in which Ian will discuss the benefits of these important estate planning tools in this session.

  • Webinar Title: SMSF Death Benefit Nominations
  • Date: Tuesday, November 30, 2010
  • Time: 4:00 PM – 5:00 PM AESDT

Space is limited.
Reserve your Webinar seat now at:
https://www1.gotomeeting.com/register/577848105

Important questions in developing an SMSF estate plan


A lot of time is spent by trustees and professionals alike developing wealth through strategies and investment choices.  But far to often we see a lack of estate planning ultimately undo all the hard work that has been achieved over the life of the fund.

Case law such as Katz vs. Grossman and Donovan vs. Donovan are timely reminders that trustees and advisers need to give appropriate consideration to their overall estate plan, which needs to include how to deal with their superannuation in the event of death.

Too often I hear throw away lines of “the kids can sort it out” or “it’s not my problem if I’m not here” or “it will be all spent before they can get their hands on it”.  With the average Self Managed Super Fund balance now being higher than the average price of a family home, this issue needs to be given the appropriate attention is deserves.  For advisers, not appropriately addressing this issue when your “DNA” is all over the fund will only present problems later on when payment of the estate occurs.

Therefore to assist in fleshing out some of the key issues for trustees and their advisers, consider some of the following key questions that should be considered for every fund and its members:

1. What arrangements need to be put in place to pass control of the SMSF on death or incapacity of the members?

You need to consider issues such as the fund’s governing rules to allow for the legal personal representative to act as a replacement trustee and have the same rights as the deceased member/trustee to deal with their benefits. Considering an appropriate death benefit nominations is obviously of utmost importance, along with appointing an Enduring Power of Attorney who can step into the shoes of a trustee/member in varying circumstances (including incapacity).

2. What strategies can/should be employed to deal with estate taxes on superannuation benefits (i.e. taxable component, CGT within the fund)?

Consideration here needs to be given to strategies to reduce the taxable component of a member’s benefit, including recontribution strategies, multi-pension strategies and the use of anti-detriment reserves.  Strategies can also be used within pension phase to crystallise CGT on certain assets to reduce the future financial impost of CGT.

3. What will be the best way to pay a death benefit – pension or lump sum – are there specific provisions needed in the Deed to facilitate such options?

There are more options available within an SMSF than any other superannuation vehicle in Australia.  Whilst there is the ability to simply pay a reversionary pension to a spouse, consider more specific strategies such as:

  • a fund wishing to provide for a non-commutable income stream of no more than $30k per annum for two children up to age 25; or
  • the ability to pay an in-specie lump sum of the business premises to the son working in the family business.

The strategies really know no bounds…

4. Are potential death benefit beneficiaries in need of “protection”? If so, what strategies/options are available to safeguard against a vulnerable, incapable or insolvent beneficiary from losing/wasting a death benefit amount?

You need to seriously consider issues such as the impact of handing a cheque over to a 20 year old drug addict child or how to best structure providing for the benefit of a disabled child (which can be achieved through an income stream via the SMSF).  Issues such as creditor risk becomes very important, as does marital risk which appears to be something of growing importance across fund trustees.  For example, there is nothing within superannuation law that says you can’t include a clause within the trust deed to exclude particular people or class of people.  Exclusion of in-laws may be an obvious one here!!  This exclusion could relate to the ability to act as a trustee, member or beneficiary of the fund.

5. Which form of nomination is most appropriate – binding or non-binding, lapsing or non-lapsing? or should the member create a SMSF Will where the death benefit instructions become a rule of the fund?

The fund’s governing rules (trust deed) are important here, but not all deeds are the same.  The use of an off-the-shelf solution for a trust deed is not always the best outcome as it might not provide for a SMSF Will or a non-lapsing binding death benefit.  Conversely, the trustees may think it is in their best interests to review and renew every 5 years.  The discussion around some of these issues potentially needs to be given greater consideration before the fund is operational.  Professionals need to be cognisant of what type of nominations are available to be paid in accordance with the deed and in what form they need to be provided.

6. What further documents i.e. Will, Enduring Power of Attorney (EPoA), etc need to be signed to meet the members estate planning wishes and objectives?

This comes to the very heart of the issue with estate planning.  Too often I see people who think a basic Will and standard death benefit nomination as being the total solution to their estate plan.  This quite simply  not true.  Appropriate consideration to Enduring Powers of Attorney, Guardianship, Wills including the use of testamentary trusts all form an important part of the overall estate plan.  Remembering that the goal is to integrate appropriate transition of wealth from an SMSF to the estate where benefits can no longer be held within the super environment (and in the most tax effective and protective way possible).

7. Do the governing rules of the fund (trust deed) complement the member’s Will and Financial PoA?

It has been mentioned earlier, but the importance of having the right trust deed in place cannot be stressed enough.  It is important to consider issues such as voting rights of each member – is it 1 x vote each or vote per $ of account balance?  does the deed allow for the LPR to have all the same rights and conditions of the deceased member to make decisions regarding the payment of death benefits, the list goes on…

These questions are very much ‘tip of the iceberg’ stuff when it comes to fleshing out the key issues for members of a SMSF.  But by using these questions, I am sure that it will provide a foundation to be able to put in place a sound SMSF estate plan.

I’ll leave you with an interesting statistic I recently heard…  The average life expectancy of a person dying without a Will is 62.  The average life expectancy of a person dying with an estate plan is into their 80’s.  Therefore, whilst it makes financial sense to get your SMSF and estate planning affairs in order, this age statistic is compelling enough to do something about it right away!!

(C) The SMSF Academy 2012
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