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  • Writer's pictureShane Ellis

When Is One SMSF Truly Better Than Two?


...Or does obtaining the desired outcome arise from focused, clear and proper planning regardless of what type and number of structures are in place?


Scott Hay-Bartlem, a lawyer colleague and well experienced SMSF legal advisor, said in a recent SMSF advisor podcast that a single-member SMSF can be a great way to avoid conflict and ensure control of assets and beneficiaries’ claims in certain cases.


...and I agree.


Of course, nothing is truly fail safe, and having two sole member SMSF

funds in a household is more costly on the compliance and administration side than one fund...and they may be handy in circumstances that are potentially litigation-prone,... BUT taking positive design steps now, including multiple funds, or other estate planning structuring, to avoid future legal conflicts is often cheaper than not planning properly and then dealing with the outcome. OUCH!


As I often say...


“Prevention is not only better than cure- it is also much, much cheaper

in the legal world,”


and...


“ If you expect the best yet plan for the worst, you will be much better

served than those where the unexpected arrives for the unprepared.”


Mr, Hay-Bartlem went on to say, “I have my own SMSF with me as a sole member, and my partner has his own SMSF and was installed as a sole member. So, if something happens to me, my partner and my child aren’t fighting about who controls the SMSF and if something happens to my partner, he passes it off as he wants to, without fighting with me or my son about how things should go.”


Single member funds are great for same sex couples wishing to provide for another intended beneficiary other than their partner, such as a child, and they also come in very handy at times when attending to whole of estate planning for clients with blended families, which by their very nature, are often more challenging when it comes to arguments over a member’s SMSF death benefits than unblended family squabbles. In

blended families, animosity, or tension, often exists between the respective family factions.


Scott, then went on talk about what he said is one of the most interesting cases about blended families, called Wooster v Morris [2013] VSC 594; where Mr Morris died with a binding death benefit nomination in place in respect to which Mrs Morris got legal advice on, and was advised that it was ineffective. She then paid Mr. Morris’ SMSF death benefits to herself rather than to his biological children and the court fight was on!


Remember, Mrs. Morris took legal advice before making the payment to herself. What unfortunately ensued was that the court didn’t agree with that advice, and not only ordered that she pay the death benefits to Mr. Morris’ children, but that she personally pay for the legal costs involved in the fight. OUCH, OUCH, OUCH!


There was hundreds of thousands of dollars in legal fees, and a lot of tears, and emotion, and years in court battles,...that I am sure lead to her contracting cancer and passing away not too long after.


And, I don’t say such things lightly! I know from firsthand dealing with Mrs. Morris, because I drew her personal estate documents for her after the SMSF court battle was lost, and she shared all of her emotions, trauma and the details of her failing battle with cancer with me.


(NB: I didn’t advise on the SMSF matter BTW, & if I had done so I would have recommended that she should have obtained a court direction on the efficacy of the BDBN before paying the SMSF death benefits to herself - Which isn’t 20/20 hindsight,

just the comments of an experienced practitioner in such matters! 😊)


By having the blended family of Mr. Morris and Mrs. Morris in the one SMSF the battle over Mr. Morris’ SMSF death benefits potentially had arisen. If Mr. Morris and Mrs. Morris had had separate funds, the trustee of Mr. Morris’ fund appointed pursuant to the terms of his SMSF Deed on his death would have controlled the death benefits of Mr. Morris, and likely paid them as he had directed without any contention.


The name lends itself to understanding the true meaning, intentions and obligations cast upon you in a SELF - MANAGED - SUPERANNUATION - FUND. You as Trustee, or Director of the company trustee, SELF MANAGE THE FUND, specifying what is to be invested in; ensuring compliance steps like auditing and accounting, and investments strategies are attended to; and ensuring that the correct estate planning documents for your fund are in order and the procedures are there to ensure they are complied with when you pass away.


Sometimes estate planning steps conclude that parties are better off in a sole member fund, and they can roll over to such a fund.


OFTEN advanced SMSF estate planning documents such as SMSF Wills; Conditional Auto-Reversionary Pension Documents with Fund member Guardians; Auto-Reversionary Pension documents; or other bespoke SMSF estate planning is necessary because quite simply ONE SIZE DOES NOT FIT ALL. Each client has their own unique needs and their matter and case has its own facts and circumstances needing the

guidance of an experienced whole of estate planning lawyer, including the SMSF estate.


[THE NOT SO FINE PRINT: In NSW the doctrine of Notional Estates applies where the court can look into ALL assets of a deceased person including SMSFs and Family Trusts when assessing estate challenges. Hence, what by design in other States and territories may work very well, may not be as effective in NSW, where extra planning may be

needed.]

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