The increasing age of SMSF members with large fund balances may require them and their families to consider using special rules to place higher benchmarks on decisions that affect the member and the management of their fund benefits, according to an SMSF technical expert.
Smarter SMSF chief executive Aaron Dunn said the ageing demographics of trustees and members within the SMSF sector and the quantum of money they control meant there was scope to consider which decisions needed to have more specific criteria applied to them before they were binding on a fund’s trustees.
“We have started doing work around this to say we are going to look at including a definition of a key decision and then allow people to have those conversations and if they want a higher standard, to understand to think about, for instance, who you might want to be able to have in the fund,” Dunn said at his firm’s recent 2022 SMSF Day in Sydney.
“Will it require a unanimous decision to bring in the spouse of a child because they don’t necessarily get along [with other fund members], so we are not going to be adding any in-law in unless everyone in the fund is happy for them to be added in, rather than by a simple majority.”
He said similar higher standards could be applied regarding assets that are held or sold by the fund, particularly where a member has lost capacity and is represented under an enduring power of attorney arrangement.
“Do we now require that any decision in the fund requires more than just 50 per cent of members to agree, particularly if there is a dollar amount voting position that would potentially allow for a person to outrank others if the person incapacitated had the highest account balance?” he said.
He added these decisions could be covered by special rules of the SMSF where information is included in the trust deed that creates a replacement rule that details what those decisions are and binds trustees to apply the higher standard when applicable.
“In terms of succession and control, it is important that you start thinking about and asking the question as to what position are the members and their funds in today and what would happen if we do not make any changes along these lines,” he said.
“What scenarios could unfold based upon any decisions that are going to be made around the trusteeship of the fund, not only for the members, but for those related to them and would it be relevant that we put in safeguards to avoid these risks?”
