When you set up a SMSF, it is not usually at the front of your mind as to what would happen in the event of a fallout with your fellow members and trustees. If such an event were to occur it can present significant problems, especially for those who have had very little to do with the decision making.
The law states that trustees must act unanimously. The exceptions to this are where there is a corporate trustee, whose decisions are made under the company’s constitution and where the SMSF trust deed allows for a different approach to decision making.
When setting up the trust deed, it might be considered appropriate for the deed to state that votes are weighted according to a member’s balance. This may allow for decisions to be made even if one trustee does not agree. It could be deemed unfair to weight votes according to member account balances, but it is important to note that power is allocated one way or another. This could be power to one or more parties, or to nobody which would create a deadlock. When it comes to decision making, the bottom line is that it seems that there is no fair method.
So, what happens if a member refuses to partake in making decisions as a result of a falling out? It can be very difficult to remove someone without their consent and conversely, if you leave it can be difficult to force the remaining members to transfer out what is rightfully yours. The portability rules, that is being able to transfer superannuation benefits to a fund of choice, do not apply to SMSF’s. The situation can become even more tricky where illiquid assets, eg a rental property, are owned in the super fund.
For whatever reasons you may choose to share a SMSF, whether it is with business associates, siblings or children, it can be risky. Careful consideration and planning needs to be given when setting up the Fund. Keep in mind that a trustee can still be challenged regardless of any strategies put in place to pre-empt such issues.