The issue of whether a trustee knows when a member has died should not cause a member benefit to be treated as a death benefit, with the initial request being the determining factor driving the treatment of that payment, according to an SMSF legal specialist.
DBA Lawyers director Shaun Backhaus said the ATO’s view on the treatment of benefits that occurred while a member was alive, but died before they could be paid out had been maintained in a number of private binding rulings, but it appeared to run counter to other information supplied at the time.
“When those website pages [QC45254] were changed to include this information, they stated: ‘If a member requested an amount to be paid from their fund before they died, but died before they received it, it may be a member benefit in some limited cases. This is determined by the facts and circumstances surrounding the payment,’” Backhaus noted in a webinar late last week.
He added some of these facts and circumstances included “knowledge at the time payment is made, including that whether they are aware that member has died”.
“I’m not sure why that knowledge is relevant, but as you can see through the private rulings, knowledge of death seems to be pretty relevant,” he said.
“In an SMSF, pretty much it is always going to be that the trustees or directors of the trustee are aware of the death, but even here I still don’t think should be that relevant.
“Knowledge will inform how and why people are doing things, but the knowledge itself I don’t think should be important.
“I try to bring these things back to the last factor on the ATO’s webpage, which is in line with the legislation and states ‘whether the payment is made because of and in line with a request made by the member while they’re alive’.”
He said people seeking a private ruling on a benefit payment should be arguing their position from this point of view and questioned whether trustees could overrule a legitimate member request.
“There is not much talk about this idea of whether the trustee can treat something as a death benefit if they’ve received a valid request to cash benefits,” he said.
“Can they just not follow a member request that was made and they’ve acknowledged?
“They have passed a valid trustee resolution that they are going to follow. Just because the member died before it happened, does that mean the trustee can stop it?
“They aren’t following the terms of the trust and may be breaching trust issues there. Maybe the estate can take action against them.
“None of that stuff is really looked into much either, but if you’ve got the right facts, it could be relevant.”
