SMSF discretionary powers override wills with death benefits

SMSF discretionary powers override wills with death benefits. Death of a family member is often a difficult time, but if the deceased was a member of SMSF, complications from trustee arrangements and payment of the death benefit can make a difficult time even worse for the family members.

A recent dispute that reached all the way to the Victorian Supreme Court serves as another reminder that a deceased person’s will does not override the discretionary power of a SMSF trustee to determine the payment of a death benefit.

It is said there are only two things certain in life, death and taxes, but what happens when they occur at the same time? Death of a loved one is not only a tumultuous time for the deceased family and friends but when the deceased is a member of a self-managed superannuation fund (SMSF) complications from trustee arrangements and payment of the death benefit come into play.

As a part of the basic conditions of an SMSF, each member is required to be a trustee or a director of the corporate trustee, and each trustee must generally be a member of the fund (except in cases of single-member funds). So, who will be the trustee of an SMSF following the death of a trustee/member is all important, particularly when trustees have the discretion in determining the payment of a death benefit.

In most cases, if a member/trustee of an SMSF dies, his or her legal personal representative may act as the trustee of the fund, or as a director of the corporate trustee, until payment of the death benefit commences.

This ensures that the fund does not fail to satisfy the basic conditions of an SMSF. However, it should be noted that the legal personal representative of the deceased does not automatically become a trustee of the fund, or a director of the corporate trustee in place of the member. Rather, the legal personal representative must be appointed as a trustee/director of the SMSF in accordance with the trust deed and they can only be a trustee/director in place of the deceased until the time that death benefits are paid from the fund.

In a situation where the SMSF is a 2-member fund consisting of 2 spouses, upon the death of one of the spouses, the fund does not immediately migrate to being a single-member SMSF. The fund is allowed 6 months to either appoint a corporate trustee or another individual trustee who is a relative but not an employee of the single member. The surviving spouse can act alone as the sole individual trustee during the 6-month period and they are not obligated to appoint the executor of the deceased member as a trustee of the SMSF.

A recent dispute between the adult children of a deceased member/trustee of an SMSF and his domestic partner over the discretionary power of the trustee to control the fund and determine the payment of a death benefit reached all the way to the Victorian Supreme Court. Therefore, who will be a trustee of a SMSF following the death of a member/trustee will be a crucial consideration that requires careful planning as the will of the deceased does not override the discretionary power of the trustee.

SMSF discretionary powers override wills with death benefits

If you or your spouse are members and trustees of a SMSF and you do not have a succession plan in place, talk to us today. We can help you and your family avoid an expensive trip to the Supreme Court to resolve any potential future disputes.

Hunter Partners are Accountants, Tax Agents and Financial Planners. We can assist you with all aspect of your accounting, tax and financial planning requirements, call Hunter Partners on (07) 4723-1223.