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Estate Planning

SMSFs shift closer to estate planning vehicle

SMSFs have now potentially become more of an estate planning vehicle after the implementation of the $1.6 million transfer balance cap, a sector strategist has said.

I Love SMSF director Grant Abbott told a recent SMSF Members Association seminar assets in excess of $1.6 million that now cannot be included in the pension phase of a fund could realistically be regarded as having no other purpose.

“We all understand the pension account is to provide us with a retirement income, but what is the accumulation account for?” Abbott said.

“Unless advisers give clients context, they’ll have no understanding of what the accumulation account is for.”

He revealed when asked this question, a trustee answered the assets in the accumulation account were to be used for emergencies.

“Well the only emergency I could ever see is when you have to go into an aged-care facility and you’re going to need to provide a refundable accommodation deposit,” he noted.

“So really the only purpose for the accumulation account is for estate planning. There is no other purpose.

“The only purpose for these assets is to pass onto the children or the grandchildren down the track.”

The confusion over what the accumulation account is actually for has presented advisers with a great opportunity to enhance their advice and value propositions, he said.

“At the moment everyone is saying you’ve got to move your money back from pension to accumulation phase, but what for? It has to have a purpose,” he said.

“And if you give it a purpose, you say this is now an estate planning mechanism.”

Once this purpose is defined, he suggested advisers will most likely be the only source to know how to formulate a strategy for these assets.

“Do you think the client knows what to do with the accumulation account? Do you think their lawyer knows? Not at all,” he said.

“So that now creates an opportunity for you to come in and use your skills to start to break open the estate plan.”

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