People are strange** … When SMSF trustees disagree

Today’s post considers the situation of where the trustees of a Self Managed Superannuation Fund (SMSF) cannot agree. 

This situation arose perhaps most starkly in the New South Wales Supreme Court decision of Notaras v Notaras [2012] NSWSC 947. 

In this case, two brothers were the trustees and members of an SMSF. Over time, one of the brothers (Brinos) made withdrawals from the SMSF, of which around $60,000 were alleged to be in excess of his entitlement. 

Brinos’ brother (Basil) had no knowledge of the withdrawals and thus had not provided consent. 

Basil approached the court to seek an order that Brinos be removed as trustee of the SMSF due to his failure to act jointly and replaced with a corporate trustee (Bazport) of which Basil was the sole director and shareholder. 

The court accepted Basil’s arguments and appointed Bazport as the co-trustee in the place of Brinos leaving the SMSF with both an individual and corporate trustee. 

The Court confirmed Basil would (as a result of the decision) need approval from the Tax Office for its failure to comply with the superannuation law requirement of all members of an SMSF also being trustees. 

As usual, please contact me if you would like access to any of the content mentioned in this post. 

** for the trainspotters, ‘People are strange’ is a song by The Doors. View hear (sic): 

Five to One – Trust Naming Conventions - Part V **

Continuing on from the last post about the types of trust deeds that can be created, this week's post summarises another five types of trusts:

Testamentary Trust – these are simply trusts established pursuant to a will. The range of different types of testamentary trusts are almost limitless and can include fixed, unit, discretionary, hybrid, resulting (constructive), bare, lineal descendent and superannuation proceeds trusts. The various types of trusts have a number of different features and specific uses, however, fundamentally the legal structures of all testamentary trusts are very similar to any other form of trust established during the lifetime of a person (‘inter vivos’ trusts).

Post-death Testamentary Trust – a testamentary trust for the benefit of minor children that can be set up within three years of the testator’s death to access the excepted trust income tax concessions. Among other rules, the children must be ultimately entitled to the capital of the trust.

Superannuation Proceeds Trust – this trust is established solely to receive superannuation proceeds on the death of a fund member. A superannuation proceeds trust can be established by a will or by deed after the death of an individual.

Superannuation Fund – while referred to as a 'fund', superannuation entities in Australia are all largely founded on basic trust principles. The main distinguishing features of superannuation funds are that they potentially can last forever, unlike most other forms of trusts, unless established under South Australian law. There are also special tax concessions available for most superannuation funds.

SMSF Unit Trust – pursuant to provisions under the superannuation legislation, a superannuation fund can invest in a related unit trust. In some circumstances, the unit trust can in fact borrow money subject to certain rules. Broadly, among other requirements, the form of unit trust generally needs to satisfy the definition of a fixed trust for tax purposes.

Each of the above trusts is explored in View’s book – 40 Forms of Trusts – Workbook.

** For the trainspotters, ‘Five to One’ is a song by legendary band The Doors from 1968.