KJSbwThe number of self managed superannuation funds (SMSFs) is increasing exponentially. This growth has been particularly prompted by changed laws allowing SMSFs to borrow to purchase investments such as real estate.

The primary rule of self managed superannuation is a requirement that all the members (a maximum of 4) must either be trustees of the fund or directors of the trustee company if the fund has a corporate trustee.

Normally, trustees must act unanimously. Unless the prospect for dispute or deadlock between trustees is considered and dealt with upfront, disputes will ultimately find their way to the Supreme Court which is all of, very expensive, uncertain and time-consuming.

This means that it necessary in every case to consider how disputes or deadlocks between trustees will be resolved.

The most common type of SMSF is still the “mum and dad” version in which a married or de facto couple are the only persons involved in decision-making. Increasingly however we are also seeing more complicated relationships that present a greater degree of risk that disputes will arise e.g. SMSFs that include children, in-laws, other relatives or business associates.

A properly drafted SMSF deed can provide a process to resolve disputes relatively quickly and inexpensively. For instance, the rules of the SMSF may provide for decisions to be made on the basis of member account balances or by a certain majority of trustees in the event of deadlocks or disputes. Similarly, the Constitution of a corporate trustee might require that decisions of the board of directors of the company can be made on a pre-agreed basis.

The eventual result of a need to resort to a formalised dispute settlement process is generally that one or both of the disputing parties will leave the SMSF and make other ongoing arrangements. Whilst that can be inconvenient in some cases, it is certainly preferable to reaching the same position after a lengthy court battle.

The key points for planning are: –

  • Always consider at the outset who you share an SMSF with. Even in the best of families, parents and children don’t always see eye to eye particularly as children grow up and form their own relationships and families;
  • Anticipate and plan for the possibility of disputes. This means that you need to ensure that your SMSF documentation is properly drafted at the outset or, if that opportunity has passed by, have your current structure reviewed by an expert and where necessary restructure.

The laws relating self managed superannuation and trusts generally are complex. At Everingham Solomons we have the experience and expertise to assist you in all your superannuation and trust issues because Helping You is Our Business.

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