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Reversionary pension deadline awareness vital

SMSF advisers and trustees must be aware of the time frame applying to death benefits payouts under the new superannuation rules when assessing the type of reversionary pension to put in place, a superannuation lawyer has said.

During a recent webinar, DBA Lawyers director Daniel Butler said where an auto-reversionary pension is in place, the credit to the surviving spouse’s transfer balance cap will arise 12 months from the date of the first spouse’s death.

It means the surviving spouse has up to a year to decide how the reversionary pension is to be treated and whether any existing pensions require commuting in order to comply with the $1.6 million transfer balance cap limit, Butler added.

If the pension is not auto-reversionary, the death benefit then has to be paid out as soon as possible and he warned advisers and their SMSF trustee clients must recognise what that could mean.

“ASAP is not a definite period. ASAP has a bit of flex there, but in practice, as a rule of thumb, if you’re going over six months before you pay out a death benefit, you’ll have to provide the reasons behind it,” he said.

“Is there a dispute? Is there a need to tie down the dependants? Is there something that’s holding you up, because the ATO would generally expect within six months you’ll have got somewhere down the track?

“However, we know ASAP could stretch out a lot longer where there is a definite dispute, it could go on for years, and in some cases it is well over 12 months.

“But you’d want to have some basis for really stretching it out because there is a pension exemption where it’s not auto-reversionary under the tax regulations and the ATO does not like that pension exemption being stretched if you are trying to push out the ASAP time frame.”

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