News

Estate Planning, Superannuation

Fund membership not tied to lifespan

SMSF membership death

SMSF members should ensure fund membership endures after death if planning on using a third party to manage death benefit payments.

SMSF members planning to use their fund to distribute a death benefit should confirm the deed does not end their membership at the time of death to ensure their legal personal representative (LPR) can act for them after their passing, a technical specialist has advised.

SuperGuardian education manager Tim Miller said there is a general acceptance membership of an SMSF ceases on the death of a member and that is often contained within a deed, but this overlooks the ability for a third party to continue to act on behalf of a member when dealing with a death benefit.

“My concern with a deed that states membership ceases on the death of the member is not so much about the capacity for the death benefit to be paid out, but more about the capacity for a legal personal representative to be appointed,” Miller said during a webinar today.

“The way the law is structured a LPR of the member can act as trustee of the fund when the member has died, but not if the deceased is no longer a member because the deed dictates they are not a member.”

He said it could be argued that where a deceased member still held a balance in a fund, they could still be considered a member, but it was simpler to remove the capacity for people to argue that point.

“So, you are better off having a deed that says membership ceases on the final payment of the member’s death benefit after they passed away,” he noted.

He added the appointment of an LPR was not automatic under law, but some may choose to mandate that appointment in the deed to prevent other parties contesting the payment of the death benefit.

“What we want to make sure of, particularly in blended SMSFs but arguably now with the six-member funds, is we don’t want a certain portion of the fund – such as adult kids – overpowering a surviving parent to make a decision about the death benefit where trustee discretion applies,” he said.

“You don’t want that sort of power with any group within an SMSF, so if you can mandate the appointment of a LPR to represent the deceased member, then some people will want to take it that far.

“These sorts of things are going to be critical as to how they are written within the deed because the standard set of rules is going to follow the law and state some can appoint a LPR, but they don’t have to be appointed, so we need to make sure that people get those processes right.”

Copyright © SMS Magazine 2022

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital