It is said there are only two things certain in life.
Death and Taxes!
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.
Who can replace a member/trustee if they pass away?
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.
What if it’s just husband and wife?
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.
If you have a SMSF and want to make sure you have everything in order for a smooth succession plan, contact us on 9295 0599 or via email at firstname.lastname@example.org
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.