“Typically, this is done as the member has no dependents who could receive the benefit tax-free. If a superannuation death benefit is paid to the independent adult children of the member, the benefit will generally be taxed at 17 per cent including Medicare,” he said.

“The natural desire of any parent to assist their children by not incurring unnecessary tax on their superannuation benefit is the reason for the timely withdrawal of superannuation benefits otherwise known as ‘death bed benefit withdrawals’.”

Hallinan explained that a member of a superannuation fund has the right to request payment of their super benefit if they have attained the age of 65 or are retired for superannuation purposes.

“If they exercise that right and the trustee of the fund authorises payment of the benefit request, then the death bed benefit withdrawal should be treated for taxation purposes as a superannuation member benefit and therefore tax-free rather than a superannuation death benefit which can be subject to 17 per cent on the taxable component of the death benefit,” he said.

He continued that if all issues are satisfied, then the fact that the payment is made after the death of the member would not, by itself, cause the payment to be treated as a superannuation death benefit.

Furthermore, Hallinan said the member will have a right to immediate benefit payments if the trust deed or governing rules of the superannuation fund provide that the benefit can be paid to the member, and that payment will not be inconsistent with the benefit payment standards applying to regulated superannuation funds.

“A member will have exercised their right to immediate benefit payment if they have completed the relevant benefit payment request signed, dated, provided bank account details for the payment and any other requirements,” he said.

“The trustee will have authorised payment of the benefit if the completed benefit payment request form has been provided to the trustee and they have resolved to authorise payment of the benefit and taking any administrative steps necessary to effect payment.”

He explained that once trustee authorisation occurs, the relationship between the member and trustee shifts to a creditor/debtor dynamic, with the benefit payment then discharging the debt owed by the trustee to the member.

“If the member has died after trustee authorisation has occurred but before payment has been made, the payment will be a superannuation member benefit and will form part of the estate of the member,” he said.

“Trustee authorisation of the benefit request means that the trustee is now a debtor to the member and the subsequent payment is the satisfaction of the debt.”

Additionally, if the member dies before trustee authorisation of the request occurs, and the trustee is unaware of the death—as can happen in APRA-regulated superannuation funds—then any authorisation and subsequent payment made posthumously by the trustee would not be considered a superannuation death benefit.

“However, if the member died before trustee authorisation of the request has occurred and the death is either known to the trustee or the death precludes the trustee from acting because the member was a trustee or a director of the corporate trustee, it is likely that any subsequent payment of the benefit would be a superannuation death benefit,” he said.

Hallinan said the ATO has raised concerns about undated but signed benefit withdrawal forms being used to argue that a benefit payment made after the death of the member should be treated as a member benefit rather than a death benefit.

“The view of the ATO is that the signed but undated requests are not, of themselves, sufficient to make a subsequent benefit payment a tax-free member benefit. This is because the signed and undated benefit withdrawal request has not been authorised by the member before their death,” he said.

“If the member has authorised the benefit withdrawal before their death by both signing and dating the request and trustee authorisation has been obtained, then the subsequent payment of the benefit after the death of the member but pursuant to that trustee authorisation should not cause the benefit payment to be treated as a death benefit.”

Finally, Hallinan said if a member is not able to exercise their role as trustee in respect of the payment immediately before their death, it is likely this will have to be done by their attorney.

“The power of attorney should specifically give the attorney the right to request the payment and in SMSFs to ensure that the attorney is empowered to become a trustee of the fund or trustee/director so that the payment can be authorised,” he said.