Excuses limited for late death benefit payments

The ATO will only recognise limited reasons offered by trustees as an acceptable excuse for not paying a death benefit within the standard timeframe.

A technical manager has warned SMSF trustees the ATO will not accept certain circumstances as a way of explaining why a late death benefit payment was not made within a timeframe that has satisfied the “as soon as practicable” requirement.

Speaking during a recent technical webinar, SuperConcepts executive manager SMSF technical support Nicholas Ali noted trustees have, by accepted standards, approximately six months to payout a death benefit and detailed some common unacceptable reasons as to why this timeframe was not met.

For example, Ali said the ATO would not consider delaying a death benefit payment to get the best market price for an asset as a valid excuse. To this end he predicted in these circumstances the regulator would argue the payment could have been made in-specie to the beneficiary.

Not having sufficient cash in the fund is another reason the ATO would find unacceptable for not paying a death benefit as soon as practicable, Ali added.

“The ATO would say ‘Well, you as trustee have an obligation under the superannuation covenants to make sure that the fund has an investment strategy and that investment strategy would have to make sure that the fund had liquidity for things like paying out death benefits’”.

Ali also identified the personal issues of trustees as being an insufficient reason for not making a death benefit payment on time.

“There’s a private binding ruling that talks about this particular situation…and in the private binding ruling they were legitimate and serious personal issues, but the tax office said no,” he revealed.

“[It said] you as the trustee of a fund, that’s mutually exclusive to what’s going on in your personal life.

“So having personal issues and not being able to administer the fund correctly is in breach of your trustee obligations. That is not an acceptable delay.”

In contrast, Ali acknowledge some situations that present trustees with a legitimate reason for paying the benefit late. These include having to seek professional financial advice before executing the payout, having to determine the validity of a binding death benefit nomination, or not being able to physically locate the beneficiaries.

Tia Thomas
January 14, 2022
smstrusteenews.com.au