Single-member funds can give families peace of mind

Although they may be slightly more costly, Mr Hay-Bartlem said they do pay off in circumstances that are litigation-prone.

“I have my own SMSF with me as a sole member, and my partner has his own SMSF and was installed as a sole member. So if something happens to me, my partner and my child aren’t fighting about who controls the SMSF and if something happens to my partner, he passes it off as he wants to, without fighting with me or my son about how things should go,” he said.

“One of my favourite sayings is ‘I never thought it would happen in my family’ because I’ve heard it so many times.

“Blended families have interesting dynamics. There’s often tension there between the step-parent and stepchild or between stepchildren, but they’re not the only ones.

“Biological families have their own issues as well so the only way to avoid these fights is to separate people out, which is where a sole member fund strategy comes in.”

He said one of the most interesting cases that highlights the case for a sole member trust was Wooster v Morris [2013] VSC 594.

“Mr Morris died with a binding death benefit nomination in place, that Mrs Morris got advice on and decided was ineffective and paid to it to herself,” he said.

“And after many hundreds of thousands of dollars in legal fees and a lot of angst and years in the courts, the binding nomination was upheld.

“Mr Morris had done all the right things, what he’d done wrongly or badly was either choosing Mrs Morris or having her in the same fund with him.

“If he’d had his own fund without Mrs Morris, with the kids taking control, the legal profession would be far worse off.”

One of the most important aspects of an SMSF is the self-managed aspect, he said, and the power that yields in controlling one’s own destiny.

“Being able to choose investments in SMSFs is the important thing,” he said.

“There’s a lot more about being able to control who your trustees are, who your members are, how your death benefit flows, how you control things - they can actually be the more important benefit.”

For single-member funds, section 17A of the SIS Act states that the member needs to be one of only two individual trustees or where there is a corporate trustee the member is either the sole director or one of only two directors.

When a member dies, Mr Hay-Bartlem explained, the situation that befalls a single-member fund is much less complex.

For starters, he noted that in a multiple-member SMSF, section 17A dictates that the executor of the estate should step in as a trustee or the director of the trustee company.

“That’s step number one. You’ve got six months after death to fix that up.

“Once the death benefit becomes payable we then jump to looking at what the new beneficiary member structure is going to look like,” he said.

However, in a single-member fund, Mr Hay-Bartlem noted “you’ve got two individual trustees, one dies, the other person, the other trustee will continue".

Namely, legal requirements dictate that upon the death of a single member, the second trustee steps into the manager position of the fund and allocates the member’s funds in the SMSF to the estate or the binding death nomination of the member.

According to Mr Hay-Bartlem ensuring the deed is watertight is paramount.

“How does your executor or the person you want to take control and make the decision about the fund, get the control?

“It ties back into planning.”