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Forward Thinking Magazine : August 2011
Macquarie Adviser Services Macquarie Adviser Services Access MAStech’s essential facts and figures, any time, anywhere. MAStech’s Little Black Book MAStech LRBA wind-up considerations An important, and possibly overlooked, facet of an LRBA is the ultimate wind-up process. Wind-up may occur simply because the SMSF decides the structure is no longer appropriate for the SMSF’s needs, because the loan is repaid, or possibly because of the death or disability of a key fund member. Advisers and SMSF trustees should carefully consider the process involved to unwind an LRBA in these various scenarios – ideally these matters should be considered as part of the establishment process. Death of a key SMSF member Let’s consider, for example, the untimely death of a key member of the SMSF. The surviving members and trustees/directors of the SMSF will be required to decide whether to continue the LRBA or wind it up. In some cases, there may be no choice but to wind up the LRBA because, for example, the loan contract has clauses which require wind-up, or the fund will be unable to service the debt because super contributions and fund income will decrease. If the LRBA is to be wound up, then a decision whether to sell the underlying asset may be required. If selling, the sale process, capital gains tax implications and holding trust (and any other entity) wind-up should be considered. Alternatively, if the asset is not sold, it will be transferred to the SMSF, with possible stamp duty and entity wind-up issues also. Life insurance to cover the debt An SMSF may wish to continue holding the asset if, for example, it is business real property associated with a family business. Hence it may be important to have funds available to reduce the outstanding debt, potentially provided by life cover on the key SMSF member’s life. However, the structuring of the life cover may have important consequences. MAStech’s indispensible Little Black Book is now available to download free of charge from the App StoreSM. Apple, iPad, iPhone, iPod touch, and iTunes are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. 31