Administration, Death benefits, SMSF

Ready fix for benefit payment issue

Member benefit payment Death benefit In-specie transfer

A particular strategy can ensure a member benefit payment will be treated as such even when the relevant person dies before the transaction is completed.

A specialist SMSF educator has identified a practical strategy to ensure a member benefit payment is treated as such in situations where a fund member is in ill health and may pass away before the transaction is processed.

“If you come to me and say: ‘My dad is on his deathbed and we have an SMSF [and would like to access some of his benefits now], what do we do?’, I’d say ‘in-specie transfers right now’,” Adviser Digest director and founder Peter Johnson told attendees of the latest Auditors Institute member webinar.

“Prepare a transfer. Go to a lawyer’s office, get it all done in the lawyer’s office witnessed by the lawyers. If stamping is needed, get it stamped immediately because then you own the assets notwithstanding registration.

“Once you own the assets, you wind the fund up then. Done. You’ll have to pay more money, of course … but you would have just saved 15 per cent of the capital amount in death benefit taxes.”

To this end, Johnson revealed the last in-specie transfer of this nature he performed saved the client $350,000, while the associated legal costs were only $5000.

According to Johnson, financial advisers could risk litigation against them if this course of action is not presented as an option for the client to take.

“[Had this strategy not been employed], if I were these clients I’d be engaging Peter Johnson for an expert witness report to say we paid these death taxes when we didn’t have to and therefore we are going to sue the planner for not performing in-specie distributions,” he said.

The suggested solution to the issue comes in the wake of the ATO demonstrating a preference to classify any member benefit payment requested but not executed before the individual in question died as a death benefit payment.

Previously, the regulator had been inclined to exercise its discretion in these situations.

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