Asset sales and death benefit payouts can be sticking point for trustees
Delay in selling an asset to pay out a death benefit is a red flag to the ATO and trustees need to be aware of the conditions which apply, says a leading technical adviser.
In a masterclass on death benefits for Heffron, Lyn Formica, head of education and content, said the ATO is reluctant to accept the excuse that an asset is taking too long to sell when it comes to dealing with death benefit payouts.
“The fact that it was taking a long time to sell an asset wouldn’t necessarily be an acceptable reason to delay cashing a death benefit,” Ms Formica said.
“The reason I say that is trustees are obliged to take liquidity into account when they decide on the investment strategy for their superannuation fund and often the wording of their investment strategy will indicate that essentially if a death benefit needs to be paid, we would consider an in-specie transfer of assets.
“That means transferring assets from the fund through to beneficiaries rather than putting it on the market and selling it.”
Ms Formica said the standard rule in relation to death benefits is they must be paid out within six to 12 months or the ATO must be notified and an agreement entered into.
“It’s not acceptable to take too long to sell the assets,” she said.
“The ATO doesn’t expect a fire sale of assets or anything like that, but the trustee can’t sit there and say ‘Look, it’s taken me two years to sell this asset because I’m not really happy with the price I’m getting for it’.
“That’s not an acceptable reason to delay dealing with the death benefit. Ultimately, if you’re going to take more than six months to deal with the death benefit, then I really would encourage you to document those reasons, in something like a trustee minute.”
By outlining the reasons a death benefit maybe delayed in being paid, Ms Formica said it can also help an auditor to see that the trustee does have the intention of dealing with the issue in the required timeframe stipulated by superannuation laws.
“The thing that the ATO is looking for from the audits is covering ‘that as soon as practicable’ concept,” she said.
“Also bear in mind that essentially what we’re looking for is circumstances which are outside the control of the trustee.
“So, if we’re saying, for example, that we need to calculate the deceased balance and the returns are a couple of years behind, and it’s going to take a little bit of time to do that, that’s an acceptable reason.
“Unless of course, the remaining trustees of the fund just can’t get their act together to provide the information to the fund accountant and that’s the reason for the delay.”
