Speaking at the SMSF Association National Conference, Cooper Grace Ward partner Hayley Mitchell said over the next few years she expects there will be a further rise in family members taking trustees to task about how they’ve exercised their discretion.
Ms Mitchell noted the decision handed last year, Owies v JJE Nominees Pty Ltd, which involved a family trust set up in the 1970s.
The Court considered whether the trustee had failed to give real and genuine consideration to two of the beneficiaries and whether certain distributions could be set aside as void.
It acknowledged that although clause 17 of the trust deed imported a very wide discretion on the trustee in exercising their power, there were still boundaries on trustee’s conduct.
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“There are also a couple of other recent Victorian and Western Australian cases that agin have family trusts involved and families taking their siblings to task about whether or not they’re carrying out the trustee role properly,” said Ms Mitchell.
In terms of SMSF clients, Ms Mitchell said this means it may be important during the planning phase to think about whether that flexibility is needed and if it isn’t, whether a binding nomination or a reversionary pension should be put in place.
“[That way], we’re removing the trustee’s discretion and all the rigmarole that a trustee might have to go through to pay the death benefit using discretion,” she explained.
Where the trustee has discretion, Ms Mitchell said that ideally the trustee should be writing to the interested beneficiaries and seeking details about their circumstances.
“So things like what their relationship was to the deceased, what their financial position is, what their health needs are and those sorts of things,” she stated.
“The trustee also needs to seek advice on what their role is and advise on the terms of the trust deed and make enquires about binding nominations. There are all those sorts of things to check off to make sure they’re fulfilling their role.”
Ms Mitchell said trustees may also need to check the trustee to see whether there is a dispute resolution process for a death benefit..
“There are trust deeds out there that similar to a retail fund provide a process for someone wanting to dispute the trustee’s decision,” she said.
“There are some SMSF trust deeds out there that provide that the trustee must first give notice of their decision to pay the death benefit and then give those interested beneficiaries a period of 30 days to object to that decision for the trustee to then reconsider it. Realistically, I don’t think that is required for an SMSF and particularly if you are going to have a dispute, it’s going to best that you don’t have those sorts of provisions in your trust deed because it just makes the trustee’s role harder.”
