SMSF - Don't forget to protect your backside (and your family's)

With almost 500,000 Self Managed Super Funds (SMSF) being set up in Australia, there is an increased concern within government and industry that some clients may not know the extent to which they need to be compliant.

One area in particular that is of concern is that of adequate protection within your SMSF. When moving super out of the retail funds such as industry funds, the automatic insurance that was linked to the account is lost. To some, this may not worry them, but if borrowing within the super fund, like so many have done thus far, the area of ‘Liquidity‘ becomes a very important factor.

If you have borrowed within your super fund, and you are the main ‘guarantor’ on the loan, then on your death or permanent disability, the bank will ‘Call the Loan’, simply because they want to make sure they are paid when you are no longer here.

What happens when the bank calls the loan on your death?

In order for your family or estate to pay the loan back to the bank, they will need money. This seems simple enough.

But where is that money going to come from? They can do one of two things:

1) Sell the asset in your super fund at that time (This would be at a fire sale rate as the funds are needed immediately, potentially selling for under market value) or;

2) SMSF Insurance – Take the proceeds from a life insurance benefit to pay out the lender, retaining the asset (property, etc) within the fund, to be paid to your estate/beneficiaries, etc)

What if there is more than one person or a couple within your SMSF:

If there are other family members within your SMSF, and the fund needs to pay your portion of the estate out, the remaining members share will drop dramatically.  Insurance for the amount needed to ‘buy out’ your share of the SMSF for your estate is vital in keeping within the laws and must do for the welfare of other members of the fund.

The law says you ‘Must consider life insurance within the fund’. While its not manditory,  taking into account the points above you may find that by not taking into account liquidity issues actually impacts on your compliance of the fund.  You could find yourself in big trouble with a very expensive story to tell to the regulator or worse, leaving those that you love in a very poor position on your death.

How do you know if you are complying with this part of the regulations?

Firstly, get in touch with the accountants who helped you set up your fund, as they are ultimately responsible for the advice you receive on your SMSF.     I can give you some points to consider and some figures to determine whether you can afford  not to have protection within the fund.

If you have an questions, get in touch.

Anthony

Qld WorkCover Changes – 
why should you be concerned?

This week the Queensland Government will pass legislation through the Parliament that will change the outcome of many future workers compensation claims.  So why should you be concerned about this? 

The proposal:

The proposed changes to QLD's Workers Compensation have the effect of limiting individuals rights to seek a common law remedy. If a threshold is introduced (as proposed), it will prevent employees pursuing common law claims if a WorkCover doctor determines that the permanent injury suffered by the employee is between 0-5%. WorkCover would then treat these injuries under a system like a "schedule of rates" offering proscribed payments for the severity and type of injury. The proposed change is effectively trying to remove smaller claims and keep workers compensation payouts under control. Employers also want their premiums to fall.

The issues:

1. According to the annual WorkCover Report 2012-13. WorkCover QLD made a profit of $517m, this alone indicates that workers compensation payouts are under control and that workcover qld has the ability to decrease WC premiums in industries that have seen increases above CPI over the past 2 to 3 years.

2. Again the annual report tells us that 43% of the Workcover claims came from 3 industries: 1. Manufacturing (18%), 2. Healthcare and Social Assistance (14%) and 3. Construction (11%)

3. Common law payouts have decreased from $513m in 2011-12 to $461m in 2012-13.  The average cost of a statutory claim was $6960 whilst the average cost of a common law claim was $138,059

4. Preventing access to common law compensation will prevent the worker from suing the employer for the loss of lifetime income that can occur as a result of even a small change in their physical ability.  For example if a 4% decrease in brain function may render it impossible for a worker to operate a vehicle or complex machinery.  For many this would spell the end of their employability.

5. With 50% of all Worker Compensation claims coming from the 5% threshold or below, this legislation will simply remove that cost and result in those claimants not being able to access adequate compensation.

Today's announcement has surprised and disappointed many in the legal industry at how fast the Government has moved to make changes without proper industry consultation. Historically, key stakeholders have been given plenty of notice and consultation. The changes is will be tabled in parliament before the end of this week, most likely Thursday.

Due to the LNP Governments overwhelming majority, this legislation will pass without debate and discussion.  So how then do you protect yourself and your most valuable asset, your ability to earn income?

Your solution:

Well your options haven't changed, they have just become clearer.  The process of protecting your income can be done simply by contacting your preferred Wealth Protection Specialist.  He or she will be able to assist you in finding a solution that can be tailored to your individual needs and those of your family.

If you’d like me to assist you, please get in touch by phone, email or twitter.

Anthony