In this article we consider the role of the superannuation Trustee in greater detail for self-managed super funds (SMSF’s) by considering their main rights and responsibilities, and the litigious consequences parties need to be wary of. This is relevant as Trustee’s can include individuals and corporate entities, which includes accountants.
All SMSF’s are Trusts and consequently have Members/beneficiaries and Trustees. The SMSF permits its Members to place assets in the “Trust” or fund, and these funds can only be accessed as part of a death benefit, or when the Member reaches retiring age.
For this reason, the Trustee’s role of administering the fund is important, and they are subject to certain duties and right’s which if the Trustee deviates from, could bring about legal ramifications.
Further, unlike APRA-regulated superannuation funds, SMSF Trustees and Members must resolve their own complaints independently through the Courts or other means (which may be stipulated in their Trust Deeds). So if Trustee’s are subject to litigation, this could result in the dissipation of assets, and personal insolvency risks in the event they breach their rights and duties.
Duties of the Trustee
1. Duty to Preserve and Invest Trust Property
The primary duty of the Trustee is to preserve the monies and property of the superannuation fund so that they can be distributed to the Members at the appropriate time.
However, this duty raises the issue of whether the Trustee has to preserve the Trust at its current levels, or to invest the funds so that they are maintained relative to inflation and the growth in the market. Whether or not this duty applies depends on the application of section 14 of the Trustee Act 1925 (NSW), which says that it all depends on the terms of the Trust deed establishing the superannuation fund.
If the terms of the Trust prohibit investment, then the Trustee cannot invest Trust property. However if the Trust is silent then the Trustee has the discretion to invest property to grow the fund.
In circumstances where the Trustee has failed to preserve Trust property, Members may commence proceedings against them personally as a possible avenue to recover lost funds. This is likely where the conduct of the Trustee is in question.
2. Keep Accounts and Provide Proper Information
The Trustee is also responsible for keeping accurate financial information on the superannuation fund’s assets, and to provide such information to its Members when requested.
Members have the option to initiate litigation or other dispute resolution mechanisms as provided in the trust deed against Trustees that fail to maintain accurate records, as a failure to maintain records are often indicative of other breaches of the Trustee’s duties to the beneficiaries.
3. Statutory Duties
Broadly, the duties of the Trustee are to act with care, skill and diligence, to act in good- faith, and a duty to not use their position for self-gain. These duties are well established in law (section 52 of the Superannuation Industry (Supervision) Act 1993 (Cth)).
The duty to act with care, skill and diligence requires Trustees to administer the Trust with the same level of diligence that an ordinary person would exercise when handling somebody else’s money.
The duty to act in good faith is described as the duty to act in the superfund’s best interests, may affect investment opportunities or how the Trust is distributed amongst its Members.
The duty of the Trustee to not use its position for self-gain, requires the Trustee to act solely in the best interests of the members of the fund. This is to avoid any conflict of interest between the Trustee and the Members.
The three above statutory duties can be litigated through the Court’s for SMSF’s, while regulated super fund disputes are heard through the Superannuation Complaints Tribunal and through the appropriate administrative tribunals. For example, Preuss v Australian Prudential Regulatory Authority [2005] AATA 748 is one instance where the SCT found that a Trustee’s misappropriation of superannuation funds was a breach of the above statutory duties.
Rights of the Trustee
1. To advance capital to the beneficiaries
Not surprisingly, the primary right of the Trustee is to administer the superannuation fund according to the SMSF deed. This gives them the right to advance funds and property from the SMSF to its Members.
However, the terms of administration under the Trust deed may give rise to litigation in circumstances where the Trust deed is inconsistent with broader principles of equity. For example, Farr v Hardy [2008] NSWSC 996 the Court considered whether the Trust deed had appropriately provided benefits for the widow of the deceased member.
Additionally, the exercise of this right becomes important in circumstances involving minors, which is a basis of a number of disputes. In some cases a Trustee may have the right to advance a portion of the superfund to the minors at an early stage, prior to when the Trust should be administered, particularly if this advancement is for the child’s maintenance or education.
2. Right of Indemnity
Where the Trustee incurs expenses on behalf of the superfund, the Trustee has a right to be indemnified for those expenses by the fund. This becomes an important protection measure for Trustees when Members or third parties attempt or bring about proceedings against them. Often, such an indemnity extends to both legal costs, and any damages awarded against them. The general right to be indemnified against third parties was confirmed by the High Court in Commissioner of Stamp Duties (NSW) v Buckle (1998) 192 CLR 226.
3. Right to obtain an opinion, advice, or direction of the court
Where the Trustee is unclear as to how the superfund is to be administered, or as to their rights under the superfund, the Trustee has the right to seek the advice of the court. For example, this right is protected under section 63 of the Trustee Act 1925 (NSW), and is particularly important as it provides the Trustee with an avenue for ensuring that their actions are justified, and that they are treating the beneficiaries equally and fairly.
Trustee’s need to ensure that this measure is used by them when their Trust Deed is unclear on an issue and further protects them from costly litigation challenging their decisions.
Conclusion
This article considers some of the key duties and rights of the Trustees of superannuation funds. These demonstrate the complexity of self-managed superfunds and the difficulties in their administration which often results in litigation between the Trustee and the Members.
The above is a reminder of the general duties and rights of Trustees, and the legal ramifications when Trustee’s deviate from them. This is particularly important for SMSF’s as disputes between Members and Trustee’s need to be resolved by them according to dispute resolution mechanisms outlined in the relevant Trust Deed or the Court system. The Trustee’s should also be wary that in certain circumstances, in the event the Court finds the Trustee to be in breach of their rights and duties, they can be held personally liable and therefore, need to be wary of the insolvency risks of being a Trustee.
