It Depends – What happens when a trustee of an SMSF needs to pay a death benefit?

In this edition of ‘It depends’, partner Hayley Mitchell talks about what happens when a trustee of a self-managed super fund needs to pay a death benefit.

Hayley, along with lawyer Sarah Camm will be running a webinar on this topic on 3 November. Register now.

Video transcript

Hi and welcome to It depends. Today I’m going to be talking about what happens when a trustee of a self-managed super fund needs to pay a death benefit.

I need to pay a death benefit from an SMSF what steps should I take?

It depends. And it will depend on whether the member had a binding nomination or reversionary pension in place. And if not, it will come down to the trustee exercising their discretion. So, that’s what we’re going to look at today. What does the trustee need to do to properly exercise their discretion?

What are the potential issues with the trustee exercising discretion?

The trustee has an obligation to act in the best interests of the beneficiaries and ensure that they’re exercising their discretion with real and genuine consideration. We are seeing an increased trend in the case law and disputes arising where beneficiaries are actually taking the trustee to task and disputing the discretion that they have exercised. And this may result in the trustee being removed from their position and/or their decision actually being reversed.

I’m a trustee exercising discretion – what should I do?

First, seek specialist advice. The case law suggests that a trustee seeking specialist advice about their role and obligation is going to provide evidence that the trustee is carrying out their role carefully. Secondly, ensure that the trustee has a copy or makes searches for all of the relevant trust deeds to make sure that the trustees have in regard to the rules of the fund. Third, the trustee should be making relevant inquiries with all of the beneficiaries. The trustee needs to have an understanding of what their financial position is, what their health needs are like, and what is their need for provision from the self-managed super fund? Fourth, the trustee can exercise their discretion and ensure that a proper resolution is drafted and signed. The trustee doesn’t need to provide reasons for the decision and generally it is recommended that the trustee doesn’t provide reasons. Sarah Camm, a lawyer in our team and I will be running a webinar on this topic, we’ll be looking at the risk areas for trustees in some more detail, as well as the process that the trustee should follow to ensure that they’re carrying out their role properly. So, if you’re interested in these issues, come and join the webinar later in November.