SMSF paperwork crucial to avoid legal problems

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Glenn Freeman: We're here at the Morningstar Individual Investor Conference 2018 and I'm talking with Shane Ellis from Shane Ellis Legal Group. And he is discussing the trends for balanced caps. Now, Shane, what's actually changed in this regard?

Shane Ellis: Basically, with the changes in the law pensions are now capped at $1.6 million and that largely means that non-concessional contributions in relation to your self-managed super fund or superannuation interest can only be made non-concessional up to the level of that cap.

From there what we've got that we are looking at is also in relationship to the type of pension that you are dealing with and as to whether that's called reversionary or non-reversionary and what the consequences are in those circumstances when the member dies and he wants his pension to be dealt with within the fund. And then we are going to have a look at the quality of the documentation and how that impacts upon things.

Freeman: Now, these changes have come into place now? Or when exactly has the change occurred?

Ellis: This is part of the laws that came in in November of 2016 and largely commenced from 1st of July 2017. So, yeah, the caps have been there and need to be complied with now. People really need to be mindful of the way that they deal with their pension interests and also their superannuation interest upon the death of their spouse. And by taking a close look at that you are going to actually keep more in the fund by not playing with the game rules and that you don't mind actually have money ejected from a fund. And as I just alluded to a moment ago, once it goes out, it's really hard to get back in.

Freeman: Sure. And you were also referring to some really recent case law that's tested some of this in a court in Queensland, I believe?

Ellis: Yeah. It's always been the case regardless of whether we were talking before the new laws or now with the current laws that the quality of the documentation is imperative. And this particular case is called Narumon's case and is only handed down two months ago by the Supreme Court in Queensland. And it addresses a number of issues in relation to pension documents and the quality of the documents and how that impacted upon the facts in the case. So, as I said, really recent one, really on point in relation to what we are talking about. So, yeah. And it makes it just a little bit more interesting than just dealing with the statute and how it applies.

Freeman: Sure. And is this something that applies more so to existing trustees versus prospective people who are about to set up an SMSF?

Ellis: The quality of the documentation is imperative across the board. A lot of people are out there and shopping at times they buy very cheap documentation. When I've spoken to large groups, especially at some of the Morningstar conferences in the past where we were going to have 300, and 400 people in the audience, I can ask the audience, you know, how many people here have actually read their trust deed. And you get a spattering throughout the audience that actually put up their hands. So, a lot of people don't think that it's important. But from the start the quality of your trust deed is imperative because the trust deed is the book of rules. It's critical. And again, this case talks about the super fund deed and the court going back to it to have a look at what was taking place.

This report appeared on www.morningstar.com.au 2021 Morningstar Australasia Pty Limited

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