Trustees must check all death benefit claims

Trustees death benefits

A trustee should check all claims to any death benefits even where they may have total discretion over the payments, an SMSF lawyer has advised.

SMSF trustees should go through a claim-staking process in relation to death benefits to avoid any suggestions of failing to exercise discretion when paying those benefits without the direction of a binding nomination, an SMSF lawyer has said.

DBA Lawyers senior associate William Fettes said superannuation law required a trustee to cash a deceased member’s super interests as soon as practicable and most SMSF deeds that did not include some form of binding direction or nomination provided some discretion to the trustee for the payment of those benefits.

Pointing to recent legal cases, including Wareham v Marsella (2020), Fettes highlighted that this discretion did not provide a free hand to a trustee.

“Since it [the paying of death benefits] is an exercise of discretionary power by a trustee, there are general law requirements that apply to the exercise of that power, so it is important a trustee understands it is a proper process otherwise the exercise of discretion could be impugned or challenged,” he said.

“This is where a claim-staking process comes in which the trustee turns their mind to who are the eligible beneficiaries for a death benefit, contacting those beneficiaries, and ascertaining their circumstances and why should they receive the benefit compared to another person.”

He said the duties of super fund trustees have been tested before the courts so their discretionary power needs to be well informed, but this should not lead to an early conclusion.

“It is important not to betray that discretion of power by predetermining who might be a recipient of a death benefit even if the trustee has a sense of the way things might go,” he said.

He also advised against SMSF deeds prescribing how any claim-staking processes could be carried out as this too could undermine the process.

“Some SMSF deeds have prescriptive rules around how that process played out and we don’t recommend that because a client may be well meaning about following the process, but may slip up on those prescriptive rules,” he said.

“It is not a good idea to lock that into the deed because it is adding another point of weakness to attack the trustee.

“If a trustee does a proper claim-staking process, they will significantly mitigate the risk of a successful legal challenge against them for exercising the discretionary power in a certain way.”

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