SMSF An SMSF auditor has confirmed the characteristics of all fund assets need to be taken into account when assessing the realistic timeframe over which a death benefit can be paid out.
BDO director Shirley Schaefer recognised the legislation specifies death benefit payments must be made as soon as practicable after the death of a member, and while an indicative rule of thumb suggests this means within a 12-month period, some situations may dictate a legitimately extended timeframe is required.
However, Schaefer warned the difficulty in dealing with a particular fund asset cannot be used to justify prolonging the pay out of death benefits.
To illustrate her point, she shared a situation she encountered in her role as an SMSF auditor that involved a fund with four members, one of whom passed away in 2009.
“Included in the fund was a large piece of vacant land that was subject to a contract of subdivision and it was agreed by all parties that the subdivision should be completed before the [death] benefits were paid out because the contract had been entered into, it just hadn’t been finalised,” she told SMSF Association Audit Day 2024 delegates this week.
“Unfortunately it took three years for the subdivision to be completed, mostly due to local council delays. In 2012, an interim death benefit was paid to the son of the deceased member, he was the death benefit dependant, but then it took another six years for the final death benefit to be paid out.
“As the auditor I accepted three [years] as a reasonable timeframe based on this particular asset. But there were other assets and paying out the last of the benefits really did boil down to the remainder of the trustees digging their heels in.
“The whole estate was in contention with all of these parties, but really from a superannuation perspective there was no reason to withhold those benefits for the last of the six years.
“So we had a contravention for the six years or at least until I was removed as [the fund] auditor.”
She said it highlighted the fact practitioners should examine all of the relevant information when assessing the speed at which a death benefit can be paid out.
