Death benefits

Early death raises benefits questions

Death benefits

The ATO’s revised view regarding member benefits paid as death benefits raises questions about the early death of a member who had planned to make a member benefit payment.

The ATO’s decision to revise its position on member benefits paid at the time of the death of a member leaves open the question of what happens when arrangements are in place to pay that benefit but a fund member dies earlier than anticipated, a legal firm has suggested.

Cooper Grace Ward partner Scott Hay-Bartlem said the ATO’s decision to view a benefit paid at the time of death of a superannuation fund member as a death benefit, even if it had been prepared as a member benefit, created problems for those going to pay the latter at the time of the member’s early death.

“One question to be resolved is what if we’ve done everything we legitimately can and the person dies a week earlier than expected?” Hay-Bartlem said during the legal firm’s recent Annual Adviser Conference.

“There’s a few places you can probably challenge the ATO decision. If you look at it from the opposite end, such as their contributions ruling, a contribution is made when the superannuation fund has all the documents it needs to register to transfer the asset. So flipping that, it should probably work back the other way as well.”

Cooper Grace Ward partner Clinton Jackson added that given a superannuation fund was a trust structure, it should be governed by trust rules in regards to releasing assets.

“The ATO view on a trust distribution is when the trustee has signed that resolution, you have an entitlement to that money,” Jackson said.

“Why is that not the same for a superannuation fund once a trustee has seen the member request, signed the resolution and done all other processing to make that happen? Why do we not have that trust entitlement going to you at that stage?”

He noted it was not uncommon for SMSF members to wait until the last moment to make the member benefit payment, but with the ATO’s revised position that may no longer be practical.

“We see this with our clients who want to wait for that last moment in case they pull out of it and get to keep the concessional treatment of super,” he said.

“Sudden deaths are difficult to plan for, but with clients who have long-term illnesses, they know the end is approaching so if you’re going to do these strategies, you need to be more organised than waiting for that last breath.”

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