While SMSF advisers spend their time working through the changes to the superannuation system, it’s also essential to focus on how insurance may need to change in the new retirement savings environment.

Planning for the unplanned: TPD and terminal illness, the session run by Tim Miller, educator, Miller Super Solutions, dealt with this issue. Attendees of the session found out more about the nexus between insurance and SMSFs.

“My session highlighted the importance of insurance and insurance-linked conditions of release, in light of the new super laws,” Miller explained. “Insurance gives clients the capacity to fund retirement benefits through insurance proceeds and is an important consideration for SMSF members and their advisers.”

This was an especially important session for SMSF experts who may be considering whether a client should receive a disability benefit as a lump sum or a pension. Should clients choose the latter, the new law deems that they are retired, triggering their personal transfer balance cap.

Miller said: “The idea for SMSF advisers and their clients is to look closely at how insurance can be structured in light of the changes, to gain the maximum benefit from it.”

The session drew on the conference case study couple, Billy and Katie, who are in their mid 30s.

“Billy has significant income but Katie does not and they don’t have a great amount in super. But they have other liabilities and a mortgage,” Miller said. “[If they place] TPD cover in their super fund, in the event Billy is injured at work and receives an insurance payout, the majority of the benefit will be treated as a tax-free lump sum due to the modification rules that apply to disability, plus the fund may obtain a healthy tax deduction.”

Divorce and separation

One of the most complex tasks for SMSF specialist advisers is determining the split of superannuation assets in the event of divorce or separation, which is always a challenging time for clients and advisers.

This was the focus of SuperSplitting director Stephen Bourke’s session at the SMSFA conference, Splitting under the Family Law Act.

The session was in two parts. First, Bourke explored the complexity of dividing the assets in an SMSF in a divorce.

“The key question is what to do with the transfer balance cap in a divorce,” he explained.

The remainder of the session looked at practical takeaways for advisers dealing with the transfer balance cap when self-managed super fund members are separating or divorcing.

“It’s essential to understand the link between the Family Law Act and the SIS Act, and how the tax law applies to the transfer balance account. You have to understand all three elements to get your advice right,” Bourke said.

Delegates benefited from the substantial work he has undertaken to understand the minutiae of the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016. This is the formal name for the changes to the super system that stemmed from announcements made at last year’s federal budget, such as the introduction of the transfer balance cap and lower contribution caps.

Bourke has identified what he believes is a technical flaw within the legislation, which was also explained in the session. He has also undertaken ongoing consultation work with Treasury on this issue.

Super splitting is multifaceted when couples are separating. Unpicking assets in the event of a divorce requires a high level of attention to detail and skill. Advisers who attended this session gained a comprehensive analysis of this challenging situation.

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