Important steps for trustees exercising discretion
A specialist law firm has outlined some of the potential issues that can arise when a trustee exercises discretion and what action they should take.
In a recent article, Cooper Grace Ward Lawyers partner Hayley Mitchell explained that the steps that a trustee needs to take in relation to a death benefit from an SMSF will depend on whether the member had a binding nomination or reversionary pension in place.
If there isn’t a death benefit or pension in place, Ms Mitchell said the trustee will need to exercise their discretion.
“The trustee has an obligation to act in the best interests of the beneficiaries and ensure that they’re exercising their discretion with real and genuine consideration,” said Ms Mitchell.
“We are seeing an increased trend in the case law and disputes arising where beneficiaries are actually taking the trustee to task and disputing the discretion that they have exercised. And this may result in the trustee being removed from their position or their decision actually being reversed.”
If a trustee needs to exercise discretion, Ms Mitchell said they may want to seek specialist advice.
“The case law suggests that a trustee seeking specialist advice about their role and obligation is going to provide evidence that the trustee is carrying out their role carefully.”
“Secondly, ensure that the trustee has a copy or makes searches for all of the relevant trust deeds to make sure that the trustees have in regard to the rules of the fund.”
The trustee should then make relevant inquiries with all of the beneficiaries, she said.
“The trustee needs to have an understanding of what their financial position is, what their health needs are like, and what is their need for provision from the SMSF.”
“The trustee can exercise their discretion and ensure that a proper resolution is drafted and signed. The trustee doesn’t need to provide reasons for the decision and generally it is recommended that the trustee doesn’t provide reasons.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.