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Estate Planning, Tax

Death benefit lump sums restrictive

Death benefit; lump sum

A senior superannuation consultant has warned lump sum death benefits can be restrictive when managing the financial obligations resulting from a deceased member’s affairs.

Advisers and their SMSF clients must be mindful of the restrictive nature of lump sum death benefit payments when managing expenses resulting from a fund member’s passing, a senior superannuation executive has said.

The current rules dictate that only two death benefit lump sums can be paid per beneficiary.

Speaking at the recent Chartered Accountants Australia and New Zealand (CAANZ) SMSF Day 2019 in Sydney, CAANZ superannuation and retirement incomes principal consultant Tony Negline pointed out commitments such as funerals and remaining mortgage payments often arise upon the death of an SMSF member.

Negline added advisers can find relying on lump sum death benefit payments to extinguish these financial obligations challenging because the belief is only two of these types of payments can be made.

“What you need to know is that this is two lump sums by beneficiary – not by fund and not by deceased, but by beneficiary,” he said.

“So if you structure it right [you manage the situation more efficiently]. Of course, if you only want to pay money to a surviving spouse, and no one else, then obviously you are subject to a two lump sum rule.

“But if you have more than one beneficiary, then you may be able to structure it so you can work through the situation a little bit more effectively than you otherwise would.”

He emphasised the proper reporting of lump sum payments is critical with regard to an individual’s transfer balance cap.

Further, he noted incorrect and complicated reporting practices made the audit of an SMSF considerably more challenging and posed a potential risk to advisers as well.

“If you take clients over from another accountant, you’ll want to do an audit of that. So I would encourage you if you’re taking over an accounting practice, and you’re doing due diligence, I would encourage you to check this stuff out,” he said.

“Because you will regret it if you have to fix up a few of these cases. They are horrendous.”

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