It Depends – The how-to of death benefits in SMSFs

In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about the ‘how-to’ of death benefits in SMSFs.

Scott, along with Clinton Jackson and Hayley Mitchell, will be presenting on this topic at our Annual Adviser Conference on 23 and 24 March 2023. Register now to attend in person or online.

Video transcript

Welcome to this edition of it depends. And I’m talking about the how-to of death benefits in SMSFs.

What does the trustee of an SMSF need to do when a member dies?

Okay, we’re going to start with an it depends this time because there’s quite a lot of things for trustees of SMSFs to deal with when a member dies and it will depend upon a range of things. Now we need to start off by looking for documents like binding death benefit nominations and pension documents. What does the trust deed say and are there any other instructions or limits in how to deal with the death benefit? We also need to think about a range of other options, like what does the trust deed say and do we have to deal with the trusteeship because a deceased member is normally a deceased trustee or director of a trustee company and we need to fix those things up as well.

Are there time limits to do things?

Yes, there are definitely time limits. So, we have to deal with the death benefit as soon as reasonably practical, particularly if we’re in pension phase because there’s a range of tax issues if we hold onto that for too long. The timing is going to be really another one of those It depends depending upon what the assets of the fund are, what the situation is, how many people we have to deal with, and do we have any binding documents to try and work through. We also have six months to deal with the trusteeship or the directorship of the trustee company. So, we need to be conscious of taking steps to move all that through.

Can possible beneficiaries challenge a death benefit payment decision?

Look, one of the big issues in death benefits at the moment is beneficiaries saying you’ve done the wrong thing and you should have thought about me to give some of the death benefit to. So, it is really important that where we’re worried that might happen, we actually work through the right process because the courts have talked about what trustees should do and shouldn’t do to pull the death benefit payment rules together without getting in trouble.

So the trustee really has to do things?

A lot of people think we can just leave superannuation to sit in their super funds when they’ve died and in fact you can’t. It is a situation where the trustee’s got to make a decision to pay the money out of the fund. So, it’s not just enough to wait and see what happens or to put it off. We need to take steps to pull the death benefit together. Now, this is an area we’re going to talk about in a workshop at the end of our Adviser Conference on the Thursday afternoon. So, our Annual Adviser Conference is 23 and 24 March and we’re having it both live in Brisbane and virtually. We’re going to spend a little bit of time talking about the mechanics of death benefit payments, how to get it right, how not to be a case we’re talking about at next year’s Adviser Conference. So, if you’ve got any questions you’d like to know more about, come along to our Annual Adviser Conference, or reach out to a member of our superannuation team. Thanks for watching this It depends.