Single-member SMSFs ‘the safest option’, says lawyer

Establishing an SMSF as a single-member fund or with a corporate trustee structure is the best way to avoid costly disputes between members, says an industry lawyer.

Townsends Business & Corporate Lawyers' special counsel for estate planning and superannuation, Brian Hor, said SMSFs with two or four members allow even-number votes to occur that could potentially lead to unpleasant and expensive disputes.

“A single member [fund], like a corporate trusteeship, will have no disagreements, making a single-member SMSF the safest fund of choice,” said Mr Hor.

“In the worst case scenarios, the cost of a dispute can leave the fund and its members with nothing because trustees have vested interests, established duties and legal responsibilities to the fund that can result in severe penalties if breached.”

Mr Hor said there were other ways to avoid or lessen the impact of disputes, however, which include drafting the SMSF trustee deed to have dispute minimising provisions.

These provisions include allowing trustee decisions to be made by a simple majority, rather than unanimously, and providing a casting vote to a particular trustee in case an even vote or deadlock occurs.

He also suggested that voting rights be based on the value of a trustee or member’s account balance within the fund.

“This eliminates a member with minority interest outvoting a member with a large fund account balance,” he said.

For a corporate trustee structure, Mr Hor said there are similar provisions contained in the constitution regarding decision-making by the directors.

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