A recent survey of SMSFs revealed that estate planning is the highest unmet need for advice, estimated to affect 59,000 funds which equates to about 10% of the total number of SMSFs in Australia. Given demographic trends and the continued growth of SMSF numbers in Australia, this advice gap looks set to rise over time.
There are many good reasons to obtain advice on your SMSF’s estate arrangements, whether you need to plan carefully to cater for a blended family structure, to determine who is eligible to receive your SMSF death benefit, or simply ensure that the most tax effective outcome can be achieved for your beneficiaries.
Whatever the need is, it is imperative to ensure that the SMSF’s estate planning arrangements dovetail with each member’s other (non-superannuation) estate arrangements in order to achieve the right overall outcomes. Featuring prominently among these are the Will and Powers of Attorney, but there are also life insurance policies and entities such as discretionary trusts to consider.
On issuance of the Practical Guidance in June this year for related party borrowings, the ATO acknowledged that further information was needed.
Recently, the ATO released Tax Determination 2016/16 which dealt with the subject of when a limited recourse borrowing arrangement has not been entered into on arm’s length terms.
The core principal at the heart of the release of the information from the ATO is that all dealings between a related party of the SMSF and the SMSF must be on ‘commercial terms’, or ‘arm’s length’. The meaning of commercial terms or arm’s length in relation to obtaining a loan in an SMSF, is that the terms of the loan, ie the interest rate, amount borrowed and term of the loan, must reflect what can be obtained from a third party such as a banking institution.
An example taken directly from the ATO tax determination compares a non arm’s length LRBA and an Arm’s Length LRBA, provides the following example:
The SMSF purchased a commercial property;
With the amount of changes to superannuation in the last five years it’s essential that your SMSF has a robust, good quality trust deed.
Although the rate of actual law changes has slowed in the last few years, there have still been numerous rulings, cases and new strategies developed which require an up to date SMSF trust deed to protect your interests and get the most from your SMSF.
The following six items are example areas where your current SMSF trust deed is likely deficient:
In Chloe Ward’s article from November 2014 – Creating a super legacy – we introduced a not so simple, but extremely valuable strategy known as the anti-detriment strategy. In this article we will explore the strategy in more detail, with a practical example of course, to show just how valuable an anti-detriment strategy can be for the right family.
As the average balance of self-managed super funds edges ever closer to $1 million, the need for a comprehensive succession or estate plan for your SMSF becomes absolutely critical. We have identified estate planning as the number one thing where trustees of SMSF are being let down.
Estate Planning is a crucial component to the management of your superannuation assets. In light of this, attention to Binding Death Benefit Nominations (BDBNs) should surpass ‘just filling in a form’.
SMSFs are the investment vehicle of choice for a huge number of Australians – which is no surprise considering the control and flexibility they offer. Although most of us ensure we have valid death benefit nominations in place covering our superannuation monies, we need to ensure these nominations are also integrated with our personal Wills to form an overall estate plan.