When an SMSF member trustee dies, below are the courses of action:
1.The surviving member trustee must pay the balance of the deceased member trustee to the nominated beneficiary within six months from date of death. If the nominated beneficiary is a dependent (ie spouse or child), the payment is tax free on the hands of the beneficiary.
2. Once the payment has been made, the surviving member trustee must decide whether to wind up the SMSF or continue with it. If the SMSF will be wound up, the balance of the surviving member trustee should be rolled-over to another complying superannuation fund. If the SMSF will be continued, a new individual member trustee will be appointed if the SMSF has individual trustees. An SMSF needs at least two individual trustees if the trustees are individuals. If the surviving member trustee does not want to or does not have anybody to be appointed as additional member trustee, he/she could set up a company with the surviving member trustee as the sole director and the company would then act as the corporate trustee of the SMSF.
3. The Trust Deed must be amended for the appointment of the new individual member trustee or creation of the corporate trustee and change of superannuation details must be submitted to the Australian Taxation Office (ATO).
4. If the surviving member trustee is the beneficiary, he/she can put back the money to the SMSF as a non-concessional contribution (meaning no tax on the SMSF). The maximum cap for non-concessional contribution is $150,000 per year but can be advanced for another two years so $450,000 can be contributed in one go. It is advisable to put the money back in the SMSF because of the tax concession. If the money is kept outside SMSF eg bank term deposit, the income will be taxed at marginal rate instead of just 15% if inside SMSF. Furthermore, once the surviving member trustee is fully retired and just drawing pension from the SMSF, the income of the SMSF will be tax free.
Mike Alvarez, a CPA and Registered Tax Agent, is the director of QA Audit and Tax Services Pty Ltd, a CPA Practice. He is also an ASIC Registered SMSF Auditor. His contact number is telephone02 9628 2933