The role of estate planning in super - The role of estate planning in super

The role of estate planning in
super

The role of estate planning in super
If you are one of the hundreds of thousands of Australians who have Self-
Managed Super Funds (SMSFs), one of the critical areas to address is how your
super will be handled when you’re no longer here. We have outlined below some
points that you should consider in managing your SMSF from an estate planning
perspective:

       Who is trustee of your SMSF?

To qualify as an SMSF, you must appoint either at least 2 individuals or a
company to act as the trustee of your fund. If you and your spouse are the only
members of your SMSF, when one of you dies, the survivor of you will need to
appoint another individual to be a joint trustee, or alternatively establish a
corporate trustee to act in this role. Consider the arrangement that suits your
needs, the needs of the other members of your fund, and best balances the costs
and hassle of changing trustees down the track.

       Binding Death Benefits Nominations (BDBNs)

A BDBN is a written direction to the trustee of your SMSF instructing the trustee
to pay your superannuation death benefits to your nominated beneficiaries. A
BDBN is binding on the trustee and overrides the trustee’s discretionary power to
distribute the assets normally contained within the SMSF trust deed. However, a

BDBN must be current and technically valid in order to be binding on the trustee
and can only be made in favour of particular beneficiaries (i.e. your legal personal
representative and superannuation dependants). The most appropriate
beneficiary will depend on your personal circumstances. As there may also be tax
implications, it is advisable to seek professional advice.

        Reversionary Pensions

If your SMSF is paying you a pension which will continue being paid to your
eligible dependants after you die, you should consider setting it up as a
Reversionary Pension. This means that when you die, the pension reverts
automatically to the nominated dependant (who must also be a member of the
fund), without the need to go through the process of the fund selling assets to pay
a death benefit. Regulations ensure that pension funds continue to be exempt
from tax until the death benefit is paid in full.

        Wills

You should be aware that super death benefits are not automatically paid to your
estate unless you have arranged for this to happen via a BDBN. Upon your death
the executor of your will becomes your Legal Personal Representative (LPR) and
manages the handling of your estate. If you are an individual trustee of your
SMSF, your LPR usually takes control as a trustee of your SMSF until the super
death benefits are paid. It is therefore important to choose an executor who is
trustworthy and capable of fulfilling this role.

        Enduring Powers of Attorney (EPA)

An EPA appoints another person to act on your behalf in relation to financial,
legal and personal decisions. Depending on the terms of your SMSF deed, your
attorney may be able to step into your shoes as trustee of your SMSF if you
become incapacitated, to manage and control your SMSF and validate, confirm or
make a Binding Death Benefits Nomination on your behalf. An appropriately
drafted EPA is therefore essential.

As a large portion of our wealth nowadays is held within SMSFs, it is very
important that the arrangements in relation to your SMSF are congruent with
your estate planning intentions. Always consult with an experienced professional
in this area to get it right the first time.

Related Post:

  An Up-to-Date Will is an essential part of your Estate Plan

Related Video:

Asset Protection: What is it? from Prime Financial Group on Vimeo.

Disclaimer:
This information has been prepared by Primestock Securities Limited ABN 67 089
676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or
update the information or opinions in it. This information does not take into
account your objectives, financial situation or needs. Before acting on this
information, you should consider whether it is appropriate to your situation. It is
recommended that you obtain financial, legal and taxation advice before making
any financial investment decision. Prime is bound by the Australian Privacy
Principles for the handling of personal information.

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International News (Issue 427) –
25 November 2016

International News (Issue 427) – 25
November 2016
The S&P500 again climbed to a record high this week, breaching 2200 before
markets took Thursday off for Thanksgiving.

On the economic front this week we saw data pointing to a post-election jump in
US consumer confidence, which is helpful, and alongside the release of this weeks
Federal Reserve board meeting minutes from last month, it looks certain that US

interest rates will rise at the next meeting on December 8th.

In China this week we saw reports that the big-5 major banks were planning to
set up asset-management subsidiaries aimed at facilitating debt-for-equity swaps
on problem loans.

This is widely seen as a constructive step in the process towards acknowledging
and dealing with China’s bad-debt problem, and could enhance recoveries as well
as freeing up locked up capital within the financial system.

                     Index Change         %

U.S. S&P 500      2205      +18    +0.8%
  London’s FTSE      6829      +34    +0.5%
  Japan’s Nikkei     18333    +470    +2.6%
    Hang Seng        22608    +345    +1.5%
 China’s Shanghai    3242      +34    +1.1%

Disclaimer:
This information has been prepared by Primestock Securities Limited ABN 67 089
676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or
update the information or opinions in it. This information does not take into
account your objectives, financial situation or needs. Before acting on this
information, you should consider whether it is appropriate to your situation. It is
recommended that you obtain financial, legal and taxation advice before making
any financial investment decision. Prime is bound by the Australian Privacy
Principles for the handling of personal information.

MAKE AN APPOINTMENT

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SMSFs: Corporate vs Individual
Trustees

SMSFs: Corporate vs Individual Trustees
One of the main reasons that Self-Managed Superannuation Funds (SMSFs) are
so popular is due to the level of control they offer. SMSFs enable members to
have full control over investment decisions, fees, and most importantly, their
retirement savings.

However, with this control comes added responsibility. SMSFs operate in the
same way as other super funds except that members of SMSFs are also trustees.
This means they assume responsibility for decisions regarding the investment of
savings, and paying benefits to members. Trustees are required to fully comply
with superannuation, tax and corporations legislation.

Failure to perform these duties can result in the trustees facing significant fines
and the fund hit with financial penalties. The Australian Tax Office has the power
to make a fund non-compliant, disqualify trustees, or instigate civil and/or
criminal charges for more severe breaches. Should a fund be deemed non-
complying, it will be subject to tax at the highest marginal tax rate.

So, choosing the appropriate structure for the role of trustee is a crucial decision.

Individual or Corporate Trustee?
When deciding on trustees for a fund, there are two options available: individual
trustees, or a corporate trustee. To date, approximately 70% of SMSFs in
Australia have individual trustees, but is it the best option? When making a
trustee nomination, due regard should be given to the following:

Individual Trustee

Advantages:
        Reduction in reporting requirements – having an individual trustee can

avoid additional paperwork and ASIC reporting requirements required of
       corporate entities.
       Less onerous procedural requirements – trustee meetings are relatively
       flexible and not subject to the same requirements as meetings of a
       corporate entity which must satisfy constitutional requirements.

Disadvantages:
       Costly to amend –individual trustee arrangements are cheap and easy to
       establish, however, they can have unforseen costs with any changes to
       trustee arrangements being costly and time-consuming to undertake.
       Record keeping/clarity of ownership – with individual administration,
       there is a risk that personal assets can become intermingled with fund
       assets, and the threat of significant penalties.

Corporate Trustee

Advantages:
       Liability management – having a corporate trustee can limit the liability of
       fund members, with potential litigants having claim on corporate assets as
       opposed to the members’ personal assets.
       Succession and estate planning – corporate trustees enable smoother
       succession and estate planning as it is easier and more cost-effective to
       replace a director of the corporate trustee than change an individual
       trustee.

Disadvantages:
       Set-up costs – the process of establishing a corporate trustee at the outset
       can be significant.
       Structure – a new proprietary limited company is required to be
       registered to act as the SMSF trustee. Company returns must be lodged
       with ASIC every year and an annual fee paid.

As outlined above, whilst establishing individual trustees may be the most cost-
effective option at the outset, the opposite may be true over time. For more
information on SMSFs and assistance in choosing the right trustee structure for

your circumstances, speak with your licensed financial adviser.

Related Post:
  Moving your Self Managed Super Fund (SMSF) into Pension Phase

Related Video:

Retirement Planning: Top 10 Tips from Prime Financial Group on Vimeo.

Disclaimer:

This information has been prepared by Primestock Securities Limited ABN 67 089
676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or
update the information or opinions in it. This information does not take into
account your objectives, financial situation or needs. Before acting on this
information, you should consider whether it is appropriate to your situation. It is
recommended that you obtain financial, legal and taxation advice before making
any financial investment decision. Prime is bound by the Australian Privacy
Principles for the handling of personal information.

MAKE AN APPOINTMENT

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International News (Issue 426) –
18 November 2016

International News (Issue 426) – 18
November 2016
Once again if I could flag the 14-page presentation I put together for clients as to
our views post the Trump election win.

The link is above in the Australian shares section, and is worth a read for those
interested in how we see the impact on investment markets.

In foreign markets this week there were several items to note.

Perhaps most significant was the ongoing strength in the USD. The US-dollar
index reached a 12-year high this week in the aftermath of Trump’s victory, with
all major cross-currencies weakening in response (AUD, Euro, Yen, GBP &
Reminbi).

Somewhat ironically (I think at least), the Chinese Renminbi fell to its lowest level
since the GFC, and should be watched closely in the coming months for signs of
renewed capital flight.

This is a major risk for the Chinese and world economy, and is ironic given the
weakness seems to have been further exacerbated by Trump’s election win (note

he said he would declare China a currency manipulator once in office!).

The semi-annual testimony to Congress of the Federal Reserve chairwoman Janet
Yellen seemed to confirm market expectations for a December rate hike.

The S&P500 closed on Thursday 3pts short of a record high, and points to
continued enthusiasm for Trump economic policy – at least for now.

                                      Index         Change           %
          U.S. S&P 500                 2187           +20          +0.9%
         London’s FTSE                 6795           -33          -0.5%
         Japan’s Nikkei               17863          +519          +3.0%
           Hang Seng                  22263           -576         -2.5%
        China’s Shanghai               3208           +37          +1.2%

Disclaimer:
This information has been prepared by Primestock Securities Limited ABN 67 089
676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or
update the information or opinions in it. This information does not take into
account your objectives, financial situation or needs. Before acting on this
information, you should consider whether it is appropriate to your situation. It is
recommended that you obtain financial, legal and taxation advice before making
any financial investment decision. Prime is bound by the Australian Privacy
Principles for the handling of personal information.

MAKE AN APPOINTMENT

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Prime: A complete Wealth Management & Accounting Advice Experience
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Borrowing to invest within your
SMSF

Borrowing to invest within your SMSF

Self Managed Superannuation Funds (SMSFs) open up a whole new world of
investment opportunities for your retirement savings, including direct property.
But what if you simply don’t have enough money in super to buy an asset
outright?

Traditionally, you may have had to consider borrowing the balance yourself and
then becoming joint owner of the investment with your super fund. Perhaps this
would have been set up through a trust structure to give you flexibility later on.

However, nowadays SMSFs can borrow money directly to help purchase
investments such as direct property and shares. As with any SMSF investment,
for this to be allowed, strict criteria must first be met.

Compliance is essential
The burgeoning growth in SMSFs combined with low interest rates has
encouraged more SMSF owners to invest in property. It is imperative Super
Funds comply with the borrowing rules, specifically:

Only commercial property or residential property used for investment
          purposes can be purchased and these transactions need to be made at
          “arm’s length” on a strictly commercial basis.
          Any property must be purchased as a single asset.
          Loans used for purchasing property need to be made on a non-recourse
          basis.
          The property title must be held in the name of the trustee of a Bare Trust,
          not the trustee of the SMSF or any member of the SMSF.

How it might work
We will use a case study to demonstrate how this might work for small business
owners.

Owners of CSJ Architects, Craig and Sarah James, currently lease their business
premises. They want to buy the premises but with their current home mortgage,
they don’t have the available money to do so.

Craig and Sarah’s SMSF has a balance of $430,000. They are interested in how
they can use some of these savings to purchase the premises (valued at $500,000)
and build up a sound asset in their Fund.

Can their SMSF borrow?
In this example, one of the benefits of investing through their SMSF is that the
couple can use a portion of their existing superannuation balance as a deposit on
the purchase of the business premises.

On these types of loans, banks are not likely to lend up to 80% or 90% of the
property value as with normal investment loans, it is likely to be no more that
65%.

Here, the SMSF has borrowed $200,000 from the bank to make up the difference
between the James’ deposit of $300,000 (60%) from their super fund and the
purchase price of the premises. Over time, the SMSF will use rental income, plus
super contributions received from Craig and Sarah, to repay the debt to the bank.

The remainder of their SMSF balance is invested across other asset classes to
meet their Fund’s investment strategy.

Other Important Factors
While there are several benefits of holding business premises in your SMSF, there
are also other important factors to consider.

For the James’, there’s the preservation (or “restricted access”) of super fund
monies to consider. Rent that is paid to the SMSF might not be accessible until
Craig and Sarah retire and each reaches their preservation age.

Loan repayments must be made from their SMSF which means their fund must
always have sufficient liquidity or cash flow to meet the loan repayments.

Importantly, Craig and Sarah need to put in place contingency planning which
considers what the Fund would do in the event of unforeseen personal
circumstances, or potential risks that could result in making the loan repayments
difficult to meet. A change in circumstances may necessitate the forced sale of
assets which may, depending on the prevailing market conditions, result in a loss
of superannuation assets.

Like Craig and Sarah, the decision you make depends on your financial
circumstances and arrangements. Don’t get caught up in all the marketing hype.
Always consult a qualified SMSF adviser to ensure your fund has the most
appropriate structure and investments for your retirement

Related Post:

  What’s involved in running a Self Managed Super Fund (SMSF)?

Related Video:

Superannuation Advice: What are the benefits? from Prime Financial Group on
Vimeo.

Disclaimer:

This information has been prepared by Primestock Securities Limited ABN 67 089

676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or
update the information or opinions in it. This information does not take into
account your objectives, financial situation or needs. Before acting on this
information, you should consider whether it is appropriate to your situation. It is
recommended that you obtain financial, legal and taxation advice before making
any financial investment decision. Prime is bound by the Australian Privacy
Principles for the handling of personal information.

MAKE AN APPOINTMENT

Start planning your future with Prime.
Prime: A complete Wealth Management & Accounting Advice Experience
MAKE AN APPOINTMENT