The trustee structure an SMSF employs will not have any bearing the ability to pay out a lump sum benefit as this issue is governed by the underlying source of the funds involved, a technical specialist has pointed out.
Smarter SMSF education and technical manager Tim Miller recognised there was a difference in what benefits could be paid from a fund as an income stream, lump sum or either and these were independent of who the trustee was.
“Benefits paid by our release authorities or on financial hardship and compassionate grounds are paid out as lump sums,” Miller told attendees of a recent webinar hosted by SuperGuardian.
“Payments due to temporary incapacity and attaining preservation age are paid out as income streams and whether those are monthly or yearly, they are still considered to be an income stream.
“Once we reach retirement or age 65, have a medical condition or permanent capacity or death, then we can either pay the benefit as a lump sum, an income stream or a combination of both.”
According to Miller the long-standing confusion around what type of trustee can pay a lump sum stems from ensuring the trust deed allows for the payment of benefits from the SMSF.
“One of the things that’s been an interesting conversation piece from the dawn of time is the concept of individual trustees versus corporate trustees, and the argument in favour of having an individual trustee structure is that it has the power to pay a pension. [So then] there’s been this faux argument if you have individual trustees, the fund can’t pay a lump sum benefit,” he explained.
“The tax office came out with their view prior to me getting into the industry, so over 25 years ago, and its position has always been that individual trustees can pay lump sum benefits, but the primary purpose of the fund has got to be for the provision of the pension.
“So our objective, and the purpose of the fund, has to be to pay the pension, but there is no restriction on paying lump sums unless your deed puts a restriction in place, and I’ve seen deeds in that situation, but most deeds now provide for both [types of payment].”
