A senior industry stakeholder has reminded practitioners they cannot stop allocating fund income to an SMSF member based solely on the fact that person has passed away.
“A common question we get asked at the helpdesk in relation to [determining] the balance of a deceased member is whether [there is any need] to continue to allocate income [to them] or not,” Accurium specialist adviser Natalie Scott revealed.
“That really depends on the wording of the trust deed. In my experience, most deeds will require income to be allocated to all members, including deceased members, on a fair and reasonable basis.”
Scott pointed out in most cases fund income will have to continue to be apportioned to a member who has died until the final death benefit is paid out.
With reference to other administrative considerations when a member passes away, she confirmed the final determination of the tax components needs to made before any payments are made to death benefit recipients.
“You’ll need to work out the taxable and tax-free components and whether there is an untaxed element or not in relation to [the particular] fund,” she told attendees of the latest Accurium technical webinar.
“That’s particularly critical if we’re looking at paying a reversionary pension or paying out a death benefit lump sum to somebody who is a non-tax dependant, which is generally going to be [an adult child].”
Further, she emphasised ensuring all relevant documents related to a member’s death are executed in the correct manner.
“[If you have] anything [someone has to sign, you need to make sure] you have the correct signatories listed on those documents,” she warned.
“That’s just going back to who the trustees of the fund should be and making sure we’ve got the correct trustees signing the correct documents because documentation is an area where a lot of [estate planning] issues come into play.”
