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SMSF Strategy and estate planning

SMSF Strategy and estate planning

Chris Morcom
Partner/Private Client Adviser
17 Aug 2015

A recent Hewison Private Wealth client scenario has served as an important reminder as to the power of tailored, comprehensive financial planning strategy, and how traditional evaluation methods sometimes cannot be applied. 

This client experienced a bitter divorce some years ago resulting in their son living and supporting them, and their adult daughter becoming aligned with their ex-partner. The recent sale of a business asset provided the client with financial security, but the long-term strategy around the investment of those funds became critical.

Aside from a reliable income in retirement, the client also wished to ensure that their estate passed through to their son, and they wanted to limit the risk of their estate being contested.

Our recommended strategy includes capitalising on the small business capital gains tax (CGT) exemptions to transfer $1.35 million of the business asset sale to the client’s existing Self-Managed Super Fund (SMSF), which does not count towards the contribution caps.  Following this, over the next three years they will contribute a further $900,000 in non-concessional contributions and $105,000 in concessional contributions to the fund.

The SMSF will start an account based pension with all the contributed funds as they are received, preserving the tax free nature of the non-concessional and CGT exempt contributions. The pension will also ensure the client has a reliable income to meet their needs.

This client has executed a non-lapsing binding death benefit nominate in favour of their son, who is also a member and co-trustee of the SMSF.  This will ensure their benefits in the fund would be transferred directly to their son in the event of their death, and that transfer would occur outside of their estate.

In consultation with this clients’ accountant and solicitor, the remaining business sale proceeds will be gifted to the client’s existing family trust.  The control of this trust will be automatically transferred to the son upon their death – once again the trust assets are not subject to their estate.

The end result is that all this client’s investment assets will be held in structures not subject to their will, minimising the effect of a claim on their estate by other family members.  This also allows them to have a reliable and tax effective income throughout their retirement. 

In addition, they will save approximately $60,000 per annum in income tax via the recommended contribution strategy, and have the flexibility to access capital from either their SMSF or their family trust if required in the future.

As discussed in our blog last week, the value that quality advice brings to a client is not just a return on investment – value means different things to different people. In this case, quality strategic and tailored advice will provide peace of mind to this client which cannot be measured using traditional methods. In our opinion, that is better than any return on investment could hope to replicate.

The information provided in the above article is general in nature and does not take into account your own specific circumstances.  You should seek the advice of an appropriately qualified professional prior to acting on any of the strategies discussed.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.