SMSF advisers and practitioners should be wary of mixing their legal responsibilities if they are appointed as both the director of an SMSF and the executor of an estate held within that fund.
DBA Lawyers special counsel Bryce Figot noted the recent decision, Application by Ellasil Pty Ltd [2023] VSC 69, was the first and only instance where the issue of whether an SMSF could legally pay a director who was also an executor was clarified.
“If you were paying close attention to Ellasil, the solicitor of the deceased, who is also the executor of the deceased estate, became one of the directors of the trustee company,” Figot told attendees at a recent DBA online SMSF legal update.
“We know generally speaking that SMSFs cannot pay directors, but can the estate pay the director a little bit more in recognition of the fact that the executor is not just working as the executor of the estate, but is also working as a director of a trustee company?
“The answer is no. No one is allowed to pay a director of an SMSF. Now there is a limited exception under section 17B [of the Superannuation Industry (Supervision) Act].”
The exemption states this rule would not apply if directors are performing duties or services ‘other than in the capacity of a director’, are appropriately qualified and hold all necessary licences to perform such duties or services.
Directors must also perform those duties or services in the ordinary course of a business performing similar duties and services for the public and the remuneration must be at arm’s length.
“As Justice McMillan [ruled in this instance], there does not appear to be any case law specifically construing section 17B. The court accepted that the solicitor, who was a director and an executor, provided professional services as a solicitor and solicitor services met those requirements. So [the exemption in] section 17B applies, but not for everything [the solicitor did],” Figot noted.
“[Justice McMillan] decided to the extent that the solicitor has charged the SMSF for communicating with the fund’s accountants, reviewing a trustee declaration or organising the sale of shares and reviewing investments, [then] no, that work is not something he is allowed to charge for. That’s not professional work, that’s trustee work. That should be done for free.
“So this is the important point: if you agree to be an executor for a client that has an SMSF, you might end up doing a lot of work for free that you cannot charge for.”