Death of a member – Can pay out as lump or pension
Commonly it is thought that on death of a member, the death benefit must be paid out as lump sum only. But a legal expert says you can also pay out with a pension. SMS magazine reports –
The inability for a death benefit to be paid as a pension unless it was made reversionary in the first place is a common myth that may be limiting death benefit planning, according to an SMSF lawyer.
Cooper Grace Ward partner Scott Hay-Bartlem said the belief death benefits had to be paid as a lump sum from superannuation in the absence of an auto-reversionary pension was a common misconception.
“When someone dies, a super fund trustee can pay a lump sum, but they can also pay a pension whether or not the dead person was drawing a pension,” Hay-Bartlem said during a recent technical briefing in Sydney.
“There are two types of death benefit pensions, this is the missing piece and I argue with advisers about this, and one type is where the pension is auto-reversionary and must continue to the surviving spouse.
“Even where someone does not have a pension which is automatically reversionary, they can still choose to pay a death benefit pension to a spouse because there is a choice element in there as well, and this second option is a step that a lot of people miss.”
He said advisers looking at setting up death benefits for clients should consider what the beneficiary, in many cases a spouse or partner, want to do with the money they will receive.
“You don’t always want the pension to continue and want your client to have a choice. This is a really important issue because we do have these two options,” he said.
“We should always read the deed and watch out for transfer balance cap issues, but we can pay benefits out as pensions, not just as a lump, (). It is such a common misconception and that is frustrating because if we are thinking this way, we lose a lot of options that we can do with death benefit planning.”
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