Question 1. I’ve seen a lot of debate about Labor’s proposed change to franking refunds and suggestions SMSFs should close their fund and transfer to an industry or corporate fund. Isn’t this just jumping from the frying pan to pot, as there will be significant fees to be paid to that fund more or less offsetting any franking credit loss? This is without considering the loss of control in decision making etc.
Answer (Paul Rickard). Most industry super funds, if not all, are net taxpayers. If you transfer your super monies and they use your funds to invest in a similar mix of assets including shares paying fully franked dividends, then their tax bill should reduce.
How they will apportion this benefit is not clear. I have seen no statement that says that they will pass on the tax benefit (lower overall tax cost) to the superannuant who transferred the funds (remember: this a person in pension phase who is not paying any tax).
The industry or corporate fund could also prove to be a more expensive option.
Assuming Labor wins government, any changes to the franking credit regime will require legislation. With most members of the current Senate cross-bench saying that they oppose the plan, it is by no means certain that the current proposal will get up as is. My counsel is to take no action at this point in time.
Question 2. Is there a place for discretionary testamentary trusts in a Will? Does your Will need to mention the SMSF?
Answer (by Graeme Colley from Super Concepts): Whether a discretionary testamentary trust has a place with a person’s will depends entirely on the circumstances. Sometimes they can be a very useful vehicle to control the flow of money and assets to the surviving family. It is best to seek the help of a lawyer who has experience in succession and estate planning to advise on the use of the discretionary testamentary trust.
As for your question about an SMSF being mentioned in a Will, here are some comments. A person’s superannuation and their last will and testament are seen as two different things. The rules of the superannuation fund will determine how benefits will be paid to the dependants of the deceased or to their estate via the legal personal representative of the deceased. Any superannuation benefits that are paid to the estate of the deceased will be administered as instructed by their last will and testament, which may require the establishment of a discretionary testamentary trust. Because of the distinction between the role of a superannuation fund and a person’s will, it would be unusual that the will would refer to the SMSF, however, I’ll leave that to the circumstances and any legal advice provided by an estate planning lawyer.
Question 3.I’d like your current thoughts on Kidman Resources (KDR). I have a substantial holding in the company purchased, over time, at an average price of $1.64.
Should I continue to hold, waiting for a performance similar to FMG? Or should I start selling to give me a more balanced portfolio?
Answer (by Paul Rickard): I don’t claim to have any expertise in regard to the spot price of lithium. Like other resource companies, Kidman Resources (KDR) will have no control over the price it receive for the bulk of its production. All it can control is how much it produces, and at what cost.
KDR will be a world class producer. But, whether it is cheap or expensive at circa $1.16 depends on your view about the spot price.
Judging by the recent trading range, $1.16 doesn’t look like too bad a price. However, KDR is not a stock where I would have a “substantial” holding, so on this basis, I would probably be a seller. In my experience, over-hyped sectors and their stocks, such as lithium and the potential application of battery technology in electric vehicles, rarely deliver for investors.
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