Trustees seeking legal advice regarding a dispute involving their SMSF cannot withhold that advice from other trustees and must provide it when requested if it has been paid for by the fund, an SMSF legal expert has warned.
DBA Lawyers special counsel Bryce Figot said the access to information also applied for any beneficiaries or potential beneficiaries of the SMSF where a trustee has had the fund pay for the advice.
“When a trustee obtains legal advice, if it is advice about how the fund is run and it is paid for from the fund, that’s a trust document which means that beneficiaries are entitled to it,” Figot said during a recent presentation at the Chartered Accountants Australia and New Zealand National SMSF Conference Online 2020.
“If the trustee receives advice personally and pays for it personally, and at the top of the advice states this is not a trust document, beneficiaries are not entitled to it because it is a personal document. That is a communication which you would have a lot more confidence that legal professional privilege would attach to it.
Figot said this position was clearly stated in a widely used legal encyclopedia which comments on the law and stated that “no legal professional privilege attaches to communications between a legal practitioner and a trustee against the beneficiaries who have a joint interest with the trustee in the subject matter of the communications”.
He added trustees have a duty to disclose any relevant documents in a dispute and a failure to do so was a breach of their duties and would suggest they were not acting in good faith.
According to Figot the only way to prevent a potential beneficiary accessing these documents was to exclude them in the trust deed but this action would potentially raise questions about whether a trustee was exercising their power in good faith.
One technique people use to manage an estrangement in the family is to exclude the estranged person when setting up the SMSF, or roll the benefits from the old fund into a new one that excludes the problematic individual.
During the same presentation, Figot recommended accountants should document any conversations with clients that may be considered legal advice while noting it is not advice but rather options the clients could pursue.