A prominent SMSF attorney has highlighted the need for advisers to be more educated around succession planning, especially in light of the 2017 superannuation reforms.
Bryce Figot, special counsel at DBA Lawyers, says there is a complex web of strategies available to advisers of clients that have more than $1.6 million in SMSF assets, “especially if a member dies with multiple interests in the fund”.
The level of understanding in the area among advisers, Figot says, is patchy.
“It really depends on how interested and knowledgeable the adviser is, regarding SMSF death benefits and keeping assets separate after death – especially in light of the super reforms last year,” he explains. “Some advisers are aware, but I suspect there is a significant portion of advisers for whom the penny hasn’t dropped.”
Dealing with multiple-interest death benefits, Figot says, is where people often go wrong.
“If the percentage of tax-free and taxable components isn’t the same, the question of how to split the assets becomes crucial,” he explains. “If the deceased has more than one interest in the fund and the total is more than $1.6 million, some will need to leave the super environment and some will remain.”
Yet there is more to figure out than what to take out of super and what to leave behind.
“Knowing whether to take out the interest with the higher taxable or tax-free component is important, but a bigger issue is when a client inadvertently elects to take out the wrong one, for example, because they aren’t made aware of the extra steps that they have to go through to create that choice.”
Advisers need to be more aware of how funds are treated after death, Figot says, in order to best manage the assets involved.
“For example,” he says, “often people don’t know that in order to keep an interest separate after death and stop it from being merged, you need to pay it out separately.
“The current laws around having to pay an interest out individually have existed since 2012, 2013. But since July 1, 2017, when it was deemed that you, in effect, can’t keep more than $1.6 million in pension phase, the issue has been brought forward.”
These issues have been put in the spotlight, Figot says, by last year’s super reforms.
Figot will be conducting a workshop titled “How to prepare your SMSF for death” at the 2018 SMSF Association National Conference.