As many of us age, so do our pensioners and those relying on their superannuation. JMA Legal work extensively with accountants and self managed super funds and the deeds that govern them. Day to day we see the issues that can arise with funds.
Recently, an elderly client who was the sole member of her self managed super fund (SMSF) had her son involved by being a director and shareholder of the company that was the trustee (and in charge) of the fund.
We have changed names, places and embellished some of the detail but the issues were as follows.
Nancy who is nearing 80 and whose husband died 10 years ago, is the sole member of the SMSF that she and her late husband set up over 30 years ago. Her accountant said she should have a company as trustee of her SMSF after her husband died. Nancy and her son, Rob became directors and shareholders (1 share each) of the new trustee company. Rob thought it would be good to help his mother out now his father had died as the SMSF contains a substantial share portfolio.
Rob being a city banker believed that the country had many years left of the mining boom and convinced Nancy in 2013 that the best investment decision was to sell the existing portfolio and invest all the SMSF money in BHP Billiton because “Asia will always be needing iron ore and coal”.
Last Christmas, Nancy, a keen observer of the stock market herself, took Rob aside and said she wants to diversify the share portfolio into other shares as the commodity outlook is not very bright. Rob disagreed and would not agree to sell any BHP shares.
Nancy was furious and called us for advice. She wants to take back control of the SMSF and not involve her risky son in the investment decisions.
However, not many options exist for Nancy to remove Rob. The SMSF deed is old and does not allow for members to remove the current trustee. Therefore, Rob would have to agree to the trustee’s removal.
There is also another potential problem, as Nancy does not have a binding death nomination in place, Rob as trustee can quite legally direct the assets of the Fund to himself after Nancy’s death and exclude the other 3 siblings. There have been numerous recent court cases with similar outcomes.
When setting up self managed super fund it is so important to think about who is controlling it and who will control it after you, or your spouse die or lose capacity.
This article is general information only and should not be relied on without obtaining further specific information.
Author: Linda Alexander