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Reversionary terms not properly documented

Many existing SMSF trust deeds may not include clearly stipulated terms required for funds to properly deal with reversionary pensions under the incoming superannuation rules, according to a technical expert.

“It’s really important that the trust deed of the fund and/or the pension agreement must stipulate reversionary terms in order for it to be valid,” NowInfinity SMSF technical director Julie Dolan said.

“I’ve seen this many a time where a member thinks that they’ve got a reversionary pension, but then going back and looking at the documentation has revealed that it’s questionable if there is a reversionary pension in place.

“Either the trust deed doesn’t allow for it or there’s no paperwork that stipulates those reversionary terms.

“So that’s a critical point.”

Dolan added that previously if a client wanted to change the pension to a reversionary pension or change the status back to non-reversionary, it required a rollback and restart, however, it could now be achieved via a trust deed resolution, which was much easier from an administration approach.

“Also, when it comes to what ranks over a binding death benefit nomination (BDBN) versus a reversionary pension, once again it comes back to the trust deed and the validity of the reversionary, but usually a valid reversionary pension, as stipulated in the trust deed, takes precedence over any BDBN,” she noted.

Reversionary pensions, which automatically revert to a beneficiary with no trustee discretion, have a different timing impact on the personal transfer balance cap than a non-reversionary or discretionary pension.

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