A specialist superannuation lawyer has reminded practitioners of the importance of knowing exactly to whom an SMSF member in pension phase would like their death benefits assigned before making an income stream reversionary.
Cooper Grace Ward partner Scott Hay-Bartlem noted many issues involving reversionary pensions arise because this rule simply has not been followed by the trustee’s adviser.
“I have had clients [approach me] with reversionary pensions who don’t want their spouse to get anything when they die. [So I’ve had to then say:] ‘Why do you have a reversionary pension to your spouse if you want them to get nothing?’ and they go: ‘Well of course I don’t have that, I’m not stupid.’ [I then I have to point out:] ‘Your document says when you die all of your super goes to your spouse,’” Hay-Bartlem shared with delegates at the recent SMSF Association Technical Summit 2024 held in Sydney.
He suggested in a situation such as this, the adviser did not confer with the client and did not tell them this would be the outcome.
“So before we make any pension reversionary, our first question [should be] do you want that person to get your super, and if [they] don’t, don’t make it reversionary. It’s really simple,” he said.
According to Hay-Bartlem, the reversionary pension documents themselves can be an issue and it is another important detail of which advisers need to be aware.
“Pension documents must say: ‘When I die, my pension must continue to name of spouse.’ I’ve seen pension documents that say: ‘When I die, my pension continues to in italics ‘insert name of spouse here’.’ That’s not a reversionary pension,” he noted.
“So we need to have pension documents that have [a specific name] on it.”
In addition, he stressed for an effective reversionary pension to be in place, the SMSF trust deed must stipulate the trustee must give effect to a reversionary pension.
“That’s really, really important,” he said.
The SMSF Association is co-hosting the SMSF Trustee Empowerment Day 2024 with smstrusteenews in a two city roadshow format. Please visit our events page to register.
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