Death benefits, Estate Planning, SMSF, Superannuation

Trustee awareness key in benefit payments

superannuation member benefit death benefit ATO SMSF

The ATO has further affirmed its treatment of a superannuation benefit paid after the death of a member will depend on the trustee’s awareness of that event.

The ATO has made another decision affirming its view that a trustee’s knowledge of the passing of a member will be central in whether a superannuation benefit paid after that event will be treated as a member benefit or death benefit.

In a private ruling made on 10 November 2023 but only released yesterday, the regulator ruled a payment from an SMSF’s member account was a death benefit as it was made two days after the member had died, a fact which the trustee was aware of, despite the process to make the payment starting more than a week beforehand.

The ruling related to a member aged 87 at the time of death in 2020 who was a member of a corporate trustee SMSF with an enduring power of attorney (EPOA) held by her son, who was in turn advised by the fund’s financial adviser to convert its assets to cash and wind up the fund.

This was agreed to by the attorney, who was also the director of the corporate trustee, and the adviser began the asset conversion process, resulting in six separate payments being made from the fund’s cash account to the member’s personal bank account, with the last taking place in 2021.

The ATO noted this was permissible because the member had a condition of release with a nil cashing restriction as they were over 65 at the time of the payment request and their superannuation benefits had been converted to unrestricted non-preserved benefits.

“The difficulty lies in the timing of the redemption proceeds into the fund’s bank account and the payment of the distributions into the member’s bank account,” it stated.

It added approval to convert the member’s assets into cash and a pay a lump sum benefit was given by their son under the EPOA on a Friday and bank statements show the financial adviser started the redemption process for the member’s managed investments on the Tuesday and Wednesday of the next week.

The SMSF started receiving the redemption proceeds two days later on the Friday, but the member died the next day and the first payment out of the fund was made on the following Monday.

“Therefore, the payments were made by the fund’s financial planner on the first business day after the member had passed,” the ATO said.

“The paramount consideration is that all of the payments were made after the member’s death, with the trustee’s knowledge that the member had passed.

“Therefore, the payment … consisting of lump sum payments … paid into the member’s bank account… is a superannuation death benefit.”

The ruling is consistent with another case released in early November last year in which the benefit payment was also made a few days after the death of the member but was considered to be a member benefit as the trustee had no knowledge they had passed away.

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