Tuesday, June 13, 2017

How soon is now ** (or ‘as soon as practicable’)?


Last week’s post considered the phrase ‘as soon as practicable’ in light of the 2017 superannuation changes (see - Estate planning and the 2017 super reforms – the six post death strategies you must be aware of).

Regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994 (Cth) requires death benefits to be cashed ‘as soon as practicable’ following the death of a member.

Unfortunately, ‘as soon as practicable’ is not defined in the Regulations and has not been otherwise defined.

Generally in our experience the Tax Office has historically expected death benefits to be paid within 6 months of a person's death, or earlier if possible.

While perhaps not directly relevant, part of the reason for this approach is likely to be because under section 17A(4) of the Superannuation Industry (Supervision) Act 1993 (Cth), any replacement trustee (or replacement director of a corporate trustee) must resign within 6 months of the death benefits commencing to be paid. In other words, 6 months is legislated in a manner that is arguably analogous to the concept of ‘as soon as practicable’.

This said, if there are objectively reasonable circumstances preventing payment for more than 6 months, this is unlikely to cause a breach of the rules, so long as the payment occurs as soon as practicable once the relevant circumstances have been resolved.

Some examples of where a payment after 6 months may still meet the ‘as soon as practicable’ test include -
  1. it may be that probate of a member's estate is seen as required before paying a death benefit, and generally probate will take longer than 6 months; 
  2. if there is a risk that an estate may be challenged or the potential recipients of a death benefit challenging the trustee's decision, confirming that the risk has passed will generally take longer than 6 months; 
  3. similarly, if there is an actual challenge to a deceased estate this may warrant delaying paying of a death benefit; 
  4.  if there is uncertainty about the validity of any purported binding death benefit nomination this may take longer than 6 months to resolve; 
  5. the nature of the assets in a fund may make distributions within 6 months impossible, for example illiquid assets such as real estate or investments in platforms that have large penalties for early withdrawal; 
  6. it may also be that the values of assets that are will form part of the cashing take an extended period to value; 
  7. surrounding circumstances, such as poor health of a surviving fund member may also justify a payment commencing later than 6 months. 
Interestingly, the 2017 superannuation reform legislation permits a reversionary beneficiary 12 months to decide if they wish to cash their benefit before it is automatically credited to their transfer balance. This allowance may (again by analogy) support the argument that a death benefits payment within 12 months will meet the ‘as soon as practicable’ test, even without other explanatory reasons.

** for the trainspotters – check out iconic 1980s new wave band The Smiths perform ‘How soon is now?’ here - https://www.youtube.com/watch?v=hnpILIIo9ek


Finally, many of the themes in this post were featured in our recent Estate Planning Roadshow.

Download the brochure to purchase a full recording of the event here - https://viewlegal.com.au/product/recorded-webinar-package/