A group life policy could put a client at risk of exceeding the transfer balance cap in their super fund after the July 1 changes, a specialist estate planning lawyer warns.

Townsends Business and Corporate Lawyers Special Counsel Brian Hor says although the cap is $1.6 million, a claim on the policy could create a breach of that limit under the new rules.

If the funds from the claim are being transferred under a binding death notice nomination, the cap could be exceeded when the former member funds are also transferred.

The cap was introduced by the Federal Government earlier this year as part of the reforms to the super system.

He cites an example of a couple with the wife starting a pension with her fund balance of $500,000.

Her husband suffers a fatal accident and the binding death nomination sees his fund benefit of $1.3 million transferred, to her resulting in a breach of the cap.

To compound matters, a $1.1 million group life policy death benefit will also be transferred.

Mr Hor says the wife’s only option is to withdraw all her husband’s benefits that exceed the $1.6 million cap, losing any tax status.

“If they had obtained estate planning advice at the time the wife first commenced her account-based pension, the risk of her being in this situation and exceeding her transfer balance cap could have been greatly reduced,” he said.

“There are some estate planning options they could have considered with their solicitor in conjunction with their financial adviser.

“This includes changing their binding death benefit nomination or group life insurance policy to nominate their respective estates, child pensions, and taking a death benefit as a lump sum and cashing the benefit out of their super.”