SMSF trustees who cannot locate essential documents or have gaps in their fund’s paper trail should establish a new one and transfer the assets to it to avoid potential disputes, according to a specialist lawyer.
DBA Lawyers special counsel Bryce Figot noted issues with misplaced deeds or incomplete records had become a frequent occurrence in regards to SMSFs, with a new case being lodged every week so far this year.
“If there are issues with the document trail, such as you cannot produce all prior deeds fully executed and in original form or there are issues with change-of-trustee documents, any of those issues, if you want the greatest certainty right now, you establish a new SMSF with a brand-new sole purpose corporate trustee,” Figot said during a recent online presentation.
“Starting a brand-new fund and transferring everything to it and then winding up the old trust by deregistering the old trustee company means that when it is disputed in the future, you can say ‘here’s a rock solid, nice, clean fund’. That’s going to put you in the driver’s seat.”
He admitted this process may not be attractive as moving assets to a new SMSF may trigger capital gains tax on some investments, while others, such as real estate, could not be transferred in-specie and would have to be liquidated.
The alternative was to seek a court order, but the outcome of this process was not always reliable, nor was it cheap, he noted.
“You can go and seek a court order and if you get it, that would give you the greatest certainty, if you get the order you want,” he said.
“It’s also going to take months or possibly years to get the court order and it’s going to be expensive.
“It will cost dollar signs, dollar signs and dollar signs.”