Division 296 is now law. In simple terms, it introduces an additional tax for people with more than $3 million in super.
For SMSF couples with larger balances, that has created a new reason to look again at estate planning.
One area receiving attention is reversionary pensions. A reversionary pension is designed to automatically continue to another person, usually a spouse, when the original pension recipient dies.
Under the new rules, the deceased member’s super can be included in the surviving spouse’s total super balance straight away.
For example, if each spouse has around $2 million in super, the surviving spouse could suddenly have a total super balance of around $4 million after the other spouse dies. That may bring Division 296 into play, even though neither person was previously over the $3 million threshold.
That does not mean reversionary pensions are a bad strategy. It simply means that arrangements your signed off on under one set of rules may need another look when the rules change.
And even if you are nowhere near $3 million in super, the broader message is still important.
Life changes. Super balances grow.
People marry, separate, retire, sell assets, start pensions and welcome new children or grandchildren into the family. Laws change too.
Your SMSF estate planning should keep up.
It is worth periodically checking your pension arrangements, death benefit nominations, Will, powers of attorney and broader estate plan to make sure they still reflect what you actually want to happen.
Because estate planning is not something you should set once and forget.
General information only. Talk to your SMSF accountant or advisor before making changes.
