If you have superannuation, then the chances are that you have heard of a transfer balance cap (TBC). But how do these impact your super after your death, and how can you ensure your wishes are carried out when you die?
TBCs were introduced on 1 July 2017. The start of this financial year marked the first time the TBC (originally set at $1.6m) was indexed. This means that not everyone now has a TBC. The indexation increased the TBC to $1.7m but importantly this does not apply to everyone and will depend on your circumstances. It is important, if you are in receipt of a pension to check your individual TBC and get professional advice if you are unsure or have any questions.
What exactly does the TBC do?
TBC’s impose a limit on the amount of capital that you can transfer to the retirement phase of super.
Crucially, from an estate planning perspective, it also impacts what happens to your superannuation when you die. The TBC applies to pensions paid to your dependants after you die (known as death benefit pensions or reversionary pensions) and this is where it can wreak havoc with your estate planning if it is not carefully worked through.
When thinking about TBCs, here are just a few of the important things to carefully consider when planning what will happen to your super after your death.
Is your death benefit to be paid as a death benefit pension?
If so, you will need to be mindful not only of your own TBC for the reasons above, but also of the TBC of the beneficiary of the death benefit pension. This will affect how much can be paid to them by way of a death benefit pension. Excess amounts must be paid as lump sums which may affect the amount of money kept in the super environment.
There are a variety of special rules which:
- delay when the reversionary pension counts towards the new recipient’s TBC and the differences between how reversionary and non-reversionary pensions are counted towards the new recipient’s TBC;
- operate to modify the TBC of a child in receipt of a death benefit pension so that their individual TBC is not used up as a result of provision of this sort.
Amongst other things, we recommend that trustees have their SMSF trust deed reviewed to enable the maximum amount of flexibility when dealing with matters such as:
- TBC;
- death benefits;
- child pensions; and
- reversionary pensions.
You should also consider undertaking a review of any binding death benefit nominations to make sure that your super is dealt with appropriately when you die.
How can HopgoodGanim Lawyers help?
HopgoodGanim’s superannuation team can assist you with understanding what the TBC is and how it affects your estate and superannuation planning. We can support you to make a tailored succession plan which provides peace of mind that your wishes will be carried out regarding your estate and your superannuation in the event of your death.
To discuss your superannuation and/or estate planning further, feel free to contact Brian Herd and Rebecca Edwards.