The New South Wales Supreme Court has confirmed how trusteeship of an SMSF works where a member and trustee loses capacity and then dies.
Peter Dawson and his wife Estelle set up an SMSF. Peter lost capacity while divorcing Estelle. Peter's son Tony (who was an attorney under Peter's enduring power of attorney) became the trustee of the SMSF with Estelle instead of Peter.
Peter died and his executor George claimed that he was the trustee of the SMSF in place of Tony from the date of Peter's death. This case is about whether the trustee of the SMSF changed just because of Peter's death, and so who is the trustee with Estelle – Tony or George?
The Court decided:
- Tony and Estelle were the trustees of the SMSF at Peter's death and remained the trustees until properly changed under the SMSF trust deed.
- Tony was not automatically removed as a trustee of the SMSF by Peter's death and replaced by Peter's executor.
- A person appointed as trustee of an SMSF because they are the attorney of a member under an enduring power of attorney is appointed personally, and not as agent or attorney for the member. That person becomes a trustee subject to all the rights and responsibilities of a trustee. Their appointment as trustee is not conditional on them continuing as an attorney.
- Peter remains a member of the SMSF until his death benefit is paid.
- The Superannuation Industry (Supervision) Act 1993 does not remove an existing trustee when a member dies and replace them with the deceased member's executor – the provisions just 'stipulate the circumstances in which a fund will be SMSF-compliant and the characteristics of trustees that are required for compliance'.
These rules are all subject to the terms of the trust deed – a differently worded trust deed could give a different result.
Interestingly, the trust deed allowed George and Estelle, as the members, to replace Tony with George. However, they did not do it in the way allowed by the trust deed and therefore Tony remained as trustee.
The case confirms the importance of:
- considering who will be the trustee of an SMSF after death and how it will pass to avoid disputes
- following the trust deed in changing trustees.
SMSFs – Court rules on trusteeship with death and incapacity from Cooper Grace Ward on Vimeo.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.