Trustees who are caught out by inconsistencies in their SMSFs are facing costly legal disputes that can take years to settle, according to an industry lawyer.
At the 2014 SMSF Professionals’ Association of Australia National Conference in Brisbane last month, Cowell Clarke partner Andrew Sinclair provided an overview of the areas where trustees were getting caught out with their SMSFs.
“Getting it wrong is a costly exercise and time consuming to recover the proceeds or get the outcome your client is looking for,” Sinclair said.
“The control and flexibility of SMSFs is where the beauty lies.”
However, the consistency in approach of the control mechanism, covering superannuation deeds and binding death benefit nominations among other areas, did not immediately come to mind for many trustees, he said.
“The problems arise when people haven’t turned their mind to them so there are inconsistent probabilities,” he said, pointing to inconsistent or uncompleted documentation as a key area.
“[For example], conflicts between documents that don’t point in the same direction, such as a will and an SMSF.”
He said he had experienced legal stoushes involving SMSFs running over a three-year time period, where litigation costs increased to the point where they overtook the outcome being pursued by the client.
“People who go off to court often find that rescue missions are an expensive exercise,” he said.
“It’s something that I think can be sometimes difficult for our clients to comprehend the cost that you say it’s going to be to make sure they’ve got their estate planning all in good shape and for everything to be set up for retirement.
“But I think it’s worth reinforcing with the client that it might be a three-year fight if we don’t get this right now and there might be a lot of wealth transfers taking place that are probably not in your estate planning intentions.”
The majority of clients Cowell Clarke saw were very educated and informed about their SMSF, he said.
“If they go about it the right way they can set up an SMSF and be confident that they’ve got themselves in a good position in their retirement and even on their death,” he said.
“What I don’t want to see happen are people getting caught out.
“The aim of the game at the end of our superannuation strategies ought to be making sure that we don’t finish up in that position of getting caught out.”
