Your SMSF health check – What happens when a member dies?

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Your SMSF health check – What happens when a member dies?

The latest changes to the superannuation system, which took effect on 1 July 2017, and their effects on self managed super funds have been well documented. One area that hasn’t been as well publicised is what happens to your money upon death, with changes to death benefits potentially having the biggest impact of all the changes.

The following document will alert you to the issues that you and your financial advisor must consider when performing your self managed super fund health check.

An introduction to the Transfer Balance Cap (TBC)

The TBC limits the amount of capital an individual can use to start ‘retirement phase’ income streams from 1 July 2017. This in turn limits a fund’s tax exempt earnings derived by the assets supporting ‘retirement phase’ income streams. The TBC for 2017/2018 is $1.6 million and will be subject to indexation (CPI) in increments of $100,000.

Once a retirement income stream has started with a balance of $1.6 million its value is able to fluctuate below and above this amount. Increases will commonly occur through investment earnings and reductions through benefit payments. You will not be able to ‘top up’ your transfer balance account if it falls below $1.6 million because of investment fluctuations and pension payments. Importantly, transition to retirement income streams that are not in retirement phase, age pensions or overseas pensions will not count towards the TBC.

The following events count towards the TBC as a ‘credit’ and increase your transfer balance account:

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