Changes to superannuation rules mean that receiving a pension on the death of a spouse may cause members of self-managed superannuation funds (SMSFs) to exceed their transfer balance cap (TBC), warns the SMSF Association.
Under new superannuation rules that took effect on 1 July 2017, assets supporting the deceased’s pension count towards the surviving spouse’s TPC. Any excess above the surviving spouse’s TPC as a result of their partner’s death can no longer be automatically transferred into an accumulation fund.
It must instead be paid out as a lump sum, meaning that the surviving spouse’s TPC can unexpectedly exceed the limit of $1.6 million.
SMSF Association head of technical, Peter Hogan, said that many SMSF members and advisers have not made appropriate measures to reflect these changes.
“It is an outcome of the superannuation regime that has received little attention and the Association is concerned that many SMSF members and their advisers are ‘blissfully ignorant’ of the impact of these changes regarding the payment of death benefits,” he said.
This is not just a problem for SMSFs with large account balances. Should both spouses be comfortably within their respective TPCs, and one dies, the surviving spouse could suddenly be in excess of their $1.6 million cap.
Hogan recommended that SMSF members should seek specialist assistance to rethink their estate planning to mitigate the impact of these changes. Even those who have previously received advise on their estate plans may need to adapt them in light of the new rules.
“SMSF members need to receive specialist advice addressing their fund’s particular circumstances to get the best possible result,” he said.
