Estate Planning

TRIS complicated by death

A transition-to-retirement income stream (TRIS) is treated in a different manner to an account-based pension upon the death of an SMSF member if it is auto-reversionary and incorporates far greater complexity, a superannuation lawyer has warned.

“The TRIS is effectively retested on the death of a primary member when it is auto-reversionary, so we look to say is the reversionary beneficiary 65? [If the answer is] yes, then they can retain that TRIS in retirement phase,” DBA Lawyers special counsel Rebecca James told delegates at the latest DBA Lawyers SMSF strategy seminar.

James stressed in order satisfy the cashing requirements, by law a death benefit pension needs to be paid out of retirement phase, meaning the reversionary beneficiary needs to be in retirement phase themselves for the TRIS to continue.

If the reversionary beneficiary does not meet a condition of being in retirement, the TRIS will need to be commuted and included in the individual’s accumulation account, she noted.

“So we’d need to look at [things like] do they have permanent incapacity, do they have a terminal medical condition, then we’d need to provide written notice to the trustee and then we’d effectively have [met the conditions] for a retirement-phase TRIS and meet our payment standards on death,” she said.

“So you can see that’s quite a complex process and also not something that grieving spouses would tend to address too quickly.”

Having an understanding of the treatment of a TRIS upon death makes converting a TRIS into an account-based pension while the member is still alive a prudent strategy, she said.

However, she pointed out there was a further issue advisers and their clients needed to consider.

“If we do need to commute the TRIS and start a death benefit account-based pension, then we need to think about our tax-free and taxable components because of the commutation,” she said.

“So you can see death just creates a whole raft of issues with a TRIS.”

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