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1. SMSF Trustee Responsibility

Following the passing of a member decisions need to be made regarding the SMSF.

  • Will the SMSF be retained

  • If it is retained who will be the Trustee

  • Will a corporate trustee be a consideration?

  • How will the death benefit be paid, In cash or in specie

  • Will there be CGT implications for the fund

2. Payment of the Death Benefit

Superannuation Industry Supervision (Sis) Regulations require that the members benefit be cashed as soon as practicable after the member’s death. For a lump sum payment the payment can be paid in specie i.e. by transferring physical assets out of the fund into a beneficiary’s possession however in Executor’s position it cannot be simply be an internal transfer by a journal within the fund.

The payment of the death benefit as a lump sum is 100% tax free to a dependant/spouse such as Executor and part taxable to Non Dependant Beneficiary 1.

For Non Dependant Beneficiary 1 the tax free portion paid is non-taxable and the balance is included in Non-Dependant Beneficiary 1s income tax return with a maximum tax rate of 15% for any funds that are paid from a taxed element and 30% for payments from an untaxed element.

The SMSF must register for PAYG Withholding and issue a PAYG payment summary within 14 days of making the lump sum payment.

The process is as follows:

  1. Review the trust deed for Death Benefit guidelines

  2. Calculate Members balance

  3. Identify the funds that will be used to pay the benefit.

  4. Calculate any Capital Gains Tax that may be payable on selling down the assets or transferring in specie.

  5. Make the Death benefit payment

  6. Issue the PAYG summary as required

  7. Notify the ATO of the changes to the SMSF

3. Who is a tax-free dependant?

Under taxation law, a death benefit dependant includes:

  • the deceased's spouse or de facto spouse

  • the deceased's former spouse or de facto spouse

  • a child of the deceased under 18 years old

  • a person financially dependent on the deceased

  • a person in an interdependency relationship with the deceased.

#Superannuation #WealthManagement #EstatePlanning

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