While super is not at the top of everyone’s list when it comes to being better versions of ourselves in the new year, there are some things worth prioritising before 2024 gets away from us.
The first one – for anyone still with individual trustees, make 2024 the year you finally convert your SMSF to a corporate trustee. Yes, no-one likes extra costs and it will cost money to set up a company. There will also be ongoing fees to ASIC. But a corporate trustee is better in every way. One of the many compelling reasons for a corporate trustee is how much easier it makes things when one of the members dies. That’s a time when there is already additional administration, why make the burden on those you leave behind even higher by also leaving them with the job of changing the SMSF trustee?
Technically, someone intending to wind up their SMSF when the first member dies can get away without making this switch. This is because an SMSF is often allowed to break the normal rules and have just one individual trustee for up to six months when this happens. In theory that should be plenty of time to sell all the assets, pay out any benefits and wind up the fund. But in practice, banks and other financial institutions will often prevent access to the fund’s cash and investments until the fund has a trustee structure they recognise as normal. And a single individual trustee won’t compute.
While you’re at it, review your death benefit nominations. These are instructions to your SMSF trustee as to what you want to happen when you die. Be very careful of just signing standard templates without fully understanding what they mean and the implications for your estate planning. Bear in mind, for example, that a validly completed binding death benefit nomination is – true to label – binding. It means your super will be dealt with exactly as you’ve stated even if that’s not the best approach for your family. That’s fine if you have thought about it with the same degree of care as you would with your Will.
Some common mistakes, for example, are blanket binding nominations to the estate when actually it can be more tax effective to take a spouse’s super as a pension within superannuation. Or nominations that split your super between your two children but make no provision for what should happen if one of those children pre-deceases you. Or forgetting that estates don’t pay medicare but individuals do – meaning that it’s often more attractive to leave super for adult children (who generally pay tax on a parent’s super) to them via the estate. These are just a few of the many factors to be weighed up when thinking about binding nominations. My advice? Get proper estate planning advice before signing anything binding.
A third suggestion – if you’re thinking of ramping up the amount going into your super in the next couple of years, concessional contributions in 2023/24 might be the answer. Concessional contributions are the ones usually limited to $27,500 per year made by your employer or made by you for which you claim a tax deduction. This year is a good one for two reasons. Firstly, it looks like there will still be some changes to tax brackets in 2024/25, even if not exactly what was expected under the Stage 3 tax cuts. For those who will be paying tax at a lower marginal rate next year, tax deductions this year are more valuable than they will be next year. Just remember, you need to have assessable income – you are not allowed to create a tax loss by claiming a tax deduction for a super contribution. There are also important deadlines and paperwork. This is super afterall.
Secondly, if you had less than $500,000 in super at 30 June 2023 you may be eligible for special rules that allow you to look back over the last 5 years and use up any concessional contribution “caps” that you didn’t fully use in the past. What’s special about this year is that this measure started in 2018/19. This is the last financial year in which any unused caps you have from back then can be used. Since you can only look back 5 years for this measure, 2018/19 drops off at 30 June 2024.
And finally, review the fund’s investment strategy documentation. Of course, most people with SMSFs are thinking about how their super is invested all the time. But documenting that careful consideration is also critical. The ATO (and therefore auditors) are giving this aspect of the fund’s record keeping even more scrutiny than usual. So the new year would also be a great time to get ahead of the game and review exactly what is documented about the fund’s investment strategy, whether it gives enough detail about the issues the trustee has considered and whether the fund is actually investing in the way the documentation says it is.
There are no doubt many other valid resolutions we could all make to improve our SMSF in 2024. But since I generally have enough trouble sticking to one or two, I imagine four will be my limit. These are my top picks.