In a recent blog post, Heffron managing director Meg Heffron said that while the ATO had expressed informally that trustees were usually expected to pay a death benefit within six months of a member’s death, they would not automatically accrue a breach penalty for taking longer.
“We are certainly aware of cases where the payment took much longer, sometimes even years, in cases where there were estate disputes or difficulty identifying the right beneficiaries, difficulties in putting trustees in place to make the relevant decisions or at least execute them, [or] health issues for the surviving spouse who was also the remaining trustee,” Ms Heffron said.
She said the strongest cases for an extension on the six-month time frame were those where there was a legal impediment or circumstance which could not have been foreseen that delayed the payment of the death benefit.
“Reasons such as a lack of liquidity in the fund would generally be insufficient — the trustee of any superannuation fund has an obligation to ensure the fund is able to make benefit payments when these are due,” Ms Heffron said.
However, she said the firm was not aware of any cases where the ATO had issued penalties or other consequences based solely on whether a trustee had paid benefits quickly enough.
“The commissioner’s focus is normally on ensuring that the beneficiary receives the appropriate benefit,” Ms Heffron said.
For funds where the deceased member had opted for a reversionary pension, there was no need for trustees to take action regarding a death benefit as the pension would automatically meet the requirements, she added.
“Even if the spouse needs to make some changes to his or her own superannuation to avoid negative tax consequences, the trustee has met the requirement to pay the death benefit by recognising the transfer of the pension to its new owner,” Ms Heffron said.
