How do I sort out my SMSF after my wife's death?

How do I sort out my SMSF after my wife's death?

My late wife and I were the two members of our self-managed super fund, and directors of the corporate trustee for about 20 years. The fund total was $2.6 million, all in pension mode, and each account balance below $1.6 million. We have had binding death benefit nominations in favour of each other for some time, both renewed less than three years ago.

I understand that as a result of my wife’s recent death, her pension account will be rolled into mine and that the resultant balance in excess of $1.6 million in my account must be rolled back into an accumulation account. Am I able to identify investments to roll back, or does the roll back have to be done on a pro rata basis?

I separately understand that, if the necessary criteria are met, the cost amounts in the accumulation account can be adjusted to their value at the time of the roll back. Is this correct, and if so, what are the necessary criteria that must be met? How is this done if the individual investment making up the accumulation account cannot be individually identified? B. C.

You have a year after your spouse dies to sort out the shared superannuation.

You have a year after your spouse dies to sort out the shared superannuation.


It's complex. You are correct in that, since you are now in excess of your $1.6 million transfer balance cap, and if you wish to roll some of the excess back into the accumulation phase, that excess has to come from your account and not your wife’s. For other readers, a death benefit pension can only be taken wholly or partly as a pension, or cashed in as a tax-free lump sum, but cannot be rolled back to the accumulation phase.

Remember that you have 12 months from the date of death to arrange matters. The credit to your transfer balance account is the value of your wife’s pension benefit at the time you became entitled to the income stream. Since it is a non-reversionary death benefit, its value may also include investment earnings (excluding any life insurance payout) that accrued to your wife’s benefit between the date of death and the date you became entitled to it.

Prior to your wife’s passing, the SMSF would have been “segregated” for tax purposes, i.e. it would have been wholly tax exempt, and for the remainder of the year it will be “unsegregated”. The fund can claim “exempt current pension income” or ECPI under the segregated method while both members lived and under the proportionate method for the remainder of the financial year, the latter requiring an actuarial certificate.

The proportionate method is only strictly required when allocating tax between exempt and taxable income. You, as trustee, can still decide to separate assets between pension and accumulation accounts for investment purposes, thus allowing you to choose which to sell, if necessary.

Adjustments to the cost base were part of the transitional capital gains tax relief available prior to July 1, 2017 for funds that were in excess of the transfer balance cap and lost their tax-free status. As I say, its complex.

I must firstly explain that I am currently in prison awaiting trial. Any assistance you can provide would be greatly appreciated regarding 1. Advice how/where to invest $100,000-$500,000 for a period of 10-20 years. (Purchase of gold bullion has been suggested.) 2. Can superannuation be withdrawn to use for legal defence fees (e.g. due to “exceptional circumstances”)? 3. How to reduce the risk of a will being successfully disputed by an undeserving family member (e.g. bequest a nominal amount to that person to show they have been considered and/or record a video statement reinforcing the desire to exclude that person)?

If looking to invest money for over a decade, I don’t know that gold is a reliable investment. It's currently more than 30 per cent below its peak in 2011, seven years ago. The price might rise if there is massive inflation and a demand for gold but I would prefer to place it into a section of share funds. For example, you could pick half a dozen equity funds offered in the Colonial First State Wholesale Investment trust and have the income reinvested.

To the best of my knowledge, super cannot be withdrawn for legal defence fees. Super benefits can be withdrawn early on “compassionate grounds”, approval for which transferred from the Department of Human Services to the Tax office from July 1, 2018. Compassionate grounds include paying for medical treatment for you or a dependant, making a payment on a loan to prevent you from losing your house, modifying your home or vehicle for you or a dependant because of a severe disability or paying for expenses associated with a death, funeral or burial of a dependant. There are no tax exemptions and, if you are under 60, this is generally taxed between 17 per cent and 22 per cent. If you are over 60 years old, you will not be taxed.

People can apply to access super due to “severe financial hardship” if you have received “eligible government income support payments” continuously for 26 weeks and are unable to meet reasonable and immediate family living expenses. Or alternatively if you have reached your preservation age (57 in 2018-19) plus 39 weeks and were not gainfully employed on a full-time or part-time basis when applying. You can always make a claim and see what result occurs.

The best way to avoid a legal challenge to a will is to be quite explicit in the will as to why a certain person is being excluded. Even then, that person may be successful if making a family provision claim. I doubt that a small payment would prevent a challenge. Giving assets away at least three years prior to death may work, but it’s a tough choice.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Financial Ombudsman, 1800 367 287; pensions, 13 23 00.