Case law points to ‘growing importance’ of SMSF document chain
Another thing SMSF Trustees need to be aware of.
A raft of recent court cases has drawn greater attention to the importance of ensuring each of the documents in an SMSF’s document chain links up correctly, says an industry consultant.
Speaking in a recent webinar, Smarter SMSF chief executive Aaron Dunn said that, each and every year, there is an ever-increasing flow of case law around things such as the payment of death benefits which has highlighted the importance of getting the fund documents together.
While historically the focus has been on whether binding death benefit nomination (BDBN) is valid or invalid, or binding or non-binding, more recent cases studies have started to focus more on the SMSF documents in the chain.
“They’re looking at things like the deed update, the changes to trustees and the pension documents,” Mr Dunn explained.
“The courts are making it very clear that if you don’t have that chain linked and linked correctly, you are going to expose the current set of information as potentially being null and void, and therefore when the court ultimately makes its decision, it may go back to old deeds or whatever that would be referred to as the operative deed.”
Mr Dunn said the courts are not only looking at the update in respect of the trust deed, but may also look at changes that would be made to trustees and therefore who had the right to potentially make those decisions if the appointment of an individual did not occur properly as well.
Last year saw litigation cases such as Cam & Bear Pty Ltd v McGoldrick, said Mr Dunn, which were taken against SMSF professionals in respect of the recovery of losses where the investments went into bankruptcy and liquidation.
This case means that the SMSF sector is becoming more litigious and that there are significant implications for auditors when they review documents for certain investments.
The Re Narumon case was one of the biggest cases about SMSF documents in the past year, and provided a lot of clarity to the sector.
“It provided some really important clarity from the courts in dealing with whether the documents were effective or not and also whether the trust deed updates and variations that were done throughout the period were valid,” he said.
“It also looked at whether the reversionary pension was on foot or not, because we had a set of circumstances whereby John Giles, the trustee, couldn’t find the pension documents, so they were lost, so therefore the question of whether the pension was on foot or not had to be determined by the courts.”
The case also looked at whether the binding death benefit nominations were in essence defective.
“They were only partially defective, but again, for the first time, we needed to know whether the nomination was void in full or whether the part that could not be paid to a non-tax dependent and non-SIS dependent would mean that the whole BDBN was void or not,” Mr Dunn explained.
Miranda Brownlee
30 January 2019
smsfadviser.com
Hot Issues
- ATO encourages trustees to use voluntary disclosure service
- Beware of terminal illness payout time frame
- Capital losses can help reduce NALI
- Investment and economic outlook, August 2024
- What the Reserve Bank’s rates stance means for property borrowers
- How investing regularly can propel your returns
- Super sector in ASIC’s sights
- Most Popular Operating Systems 1999 - 2022
- Our investment and economic outlook, July 2024
- Striking a balance in the new financial year
- The five reasons why the $A is likely to rise further - if recession is avoided
- What super fund members should know when comparing returns
- Insurance inside super has tax advantages
- It’s never too early to start talking about aged care with clients
- Capacity doubts now more common
- Most Gold Medals in Summer Olympic Games (1896-2024)
- SMSF assets reach record levels amid share market rally
- Many Australians have a fear of running out
- How to get into the retirement comfort zone
- NALE bill passed by parliament
- Compliance focus impacts wind-ups
- LRBA interest rates increase for 2025
- Income-free areas set to increase from 1 July
- Most Spoken Languages in the World
- Middle-to-higher incomes boosting SMSF growth
- Investment and economic outlook, May 2024
- Transitioning into retirement: What you should know
- Plan now to take advantage of stage 3 tax cuts
- Deeming freeze a win for Age Pensioners
Article archive
- April - June 2024
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
- January - March 2015
- October - December 2014
January - March 2019 archive
- When super isn't compulsory
- Investors brace for Brexit - deal or no deal
- ATO identifies SMSF contravention red flags
- Extra website resources and tools is one way we offer you and your family more.
- Tax and estate planning traps flagged with pension restructures
- A checklist for a healthy financial year
- High-risk LRBAs, TBAR on the ATO’s radar this year
- All you need to know about how Australia is going.
- Royal Commission report makes super fee recommendations
- Four tips for boosting your super balance
- New Year resolutions, New Year strategies
- Part 4 - The major benefit of ‘behavioural coaching'
- 3 tips for weathering the market's bumpy ride
- Common BDBN ‘pitfalls’ flagged in wake of ASIC action
- Case law points to ‘growing importance’ of SMSF document chain
- How Australia is performing.
- Global outlook summary: Down but not out
- Australia - a comprehensive run-down of our vital statistics.
- Your guide to smarter holiday reading
- Verifying asset values in a SMSF.
- Admin, BDBN errors flagged for SMSFs this year
- ATO targets non-arm's length income - NALI
- Retiring in their 30s or 40s?