SMSF disputes on the rise: Equity Trustees

Disputes over self-managed superannuation funds (SMSFs) are on the rise as the number of Australians seeking to take control of their own super has increased, according to Equity Trustees.

Equity Trustees national manager for estate planning, Marie Brownell, said it also reported a rise in legal wrangles over trusts in the past year because of do-it-yourself trusts and poorly drafted off-the-shelf trusts.

"As a result of the proliferation of SMSFs in Australia, we are seeing more SMSFs challenging trust decisions as a result of trustees acting negligently, incompetently or even fraudulently,” Brownell said.

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"Before setting up an SMSF, it is important to understand the trusts rules.”

Brownell said the Wareham v Marsella case illustrated the essence of SMSF disputes that were on the rise.

In that case, Wareham, trustee of her deceased mother’s SMSF, resolved to pay herself all of her mother’s $450,000 death benefit as her mother did not leave a binding death benefit nomination.

However, Wareham’s stepfather Marsella was executor and successfully sued Wareham on the grounds that Wareham had exercised her discretion over the SMSF without real and genuine consideration to the trust’s objectives.

Commenting on the case, Brownell said: “It’s often forgotten that superannuation death benefits do not automatically fall into the estate for distribution in accordance with the will.

“In the absence of a binding death benefit nomination, the trustee of the fund will decide who gets the benefit.”

Brownell said people often overlook who would become the continuing trustee.

“If it’s someone who stands to benefit themselves, in a manner contrary to your wishes, then you need to carefully consider what steps you need to take to ensure your death benefit is paid as you intend,” she said.

"In order to establish a trust that is suitable for your current and changing circumstances, as well as those of your loved ones, always get proper legal advice, ensure you have a good succession plan for who is going to control the trust on death or incapacity and never sign anything you don't understand.”