SMSF trustees should not rely on a previous private binding ruling (PBR) in regards to the treatment of death benefits being treated as a member benefits nor set up open ended arrangements to facilitate that shift within their fund, an SMSF lawyer has cautioned.
DBA Lawyers director Daniel Butler said previous rulings have allowed an SMSF and Australian Prudential Regulation Authority-regulated fund to pay a member benefit, rather than a death benefit, where the member who had met a condition of release, made an application for payment prior to their death.
“The ATO’s view on this… has obtained some interest and some people have been saying ‘Have a go, put your request in, or have an undated request so you can date it any time you’re ready’,” Butler revealed during a recent webinar.
“We would be really cautious here and not encourage this type of activity but rather encourage funds to have proper estate and succession planning, to get their rules in place, to set up a power of attorney and ensure it has expressed authorisation to deal with their super and make sure the SMSF deed also has that express power in it.”
Butler added SMSFs should also have successor directors in place for the fund and to take all these actions before the death of a member.
“If you cannot do it before death and rely on an undated document that you pull out then we are [looking at] fraud and criminal activity,” he warned.
He said some of the advice provided around the interpretation of the PBRs has been “cavalier” and all document preparation should be done legally and effectively prior to death.
“The old story is don’t rely on a PBR, it only protects the applicant and we’ve seen over the years a number of areas where taxpayers got into a lot of trouble relying upon a PBR. Instead obtain an expert opinion but if you want to be cavalier and rely upon a bit of commentary realise the risks that might be involved,” he suggested.
The ATO confirmed Butler’s view with an update on its website late last week stating where a member requested a benefit before death, it may be a member benefit in limited cases which would be determined by the circumstances surrounding the payment.
The regulator noted SMSF trustees can only pay benefits in line with the governing rules of the fund which had to be consulted to determine a member’s benefit entitlements in the event of death.
It said trustees are also to give consideration to whether a payment was a member or death benefit based on the terms of the request from the member, the terms of the trust deed and what knowledge they held at the time the payment is made including whether they are aware that the member has died.
“For guidance on your specific circumstances, you can apply for a private ruling,” the ATO concluded.