Planning for the death of a member should be a priority for practitioners helping trustees set up an SMSF as this can help the fund avoid adverse and unintended tax outcomes in the future, according to a technical specialist.
Smarter SMSF education and technical manager Tim Miller urged advisers to take the initiative and discuss with their SMSF clients how their benefits will be paid upon their death as the ATO is unlikely to grant any leniency to trustees due to poor preparation and planning.
“I’ve always said estate planning starts from the first contribution to the fund. I understand that isn’t the most comfortable conversation to have with a new trustee because most people aren’t thinking about passing away when they start an SMSF. Unfortunately, those events do occur, so we need to have conversations early with trustees to make sure that they’re not leaving these estate planning decisions too late,” Miller noted during a SuperGuardian webinar today.
“For example, when we look at the last 12 months and the SMSFs that have asked the ATO as to whether or not [a payment] is a member benefit or a death benefit, there is one very obvious finding. For every self-managed super fund that’s asked the question, the answer that has come back is it will be treated as a death benefit.
“If a member of a self-managed super fund requests their payment to themselves as a member and they die prior to the payment being made, the ATO’s position is it will always be a death benefit because it is likely the trustees know that the member has died.
“The whole concept of trying to plan for that moment early really doesn’t stack up with the ATO, so we need to make sure people understand that and ensure they pay their benefits out prior to their death if that is a key issue for the beneficiary.”
While he acknowledged effective estate planning is challenging, he pointed out preparing as early as possible generally leads to a more favourable outcome due to the complexity involved in the process.
“It’s always going to be a tricky thing to manage because you’re dealing with human beings who may be in complex relationships, but we want to make sure, regardless of personal relationships, decisions are made based on the intentions and desires of the deceased member,” he said.
“There are a lot of key issues we need to bring together to ensure we have a successful transition from the member being alive to the member passing away and that their benefits are paid accordingly.”
