smsfs and asset protection€¦ · trust (rowley family trust). no evaluative process occurred...

SMSFs and Asset Protection

Peter Bobbin FTIAArgyle Lawyers

Is your Super protected?How would you answer the following?

If you can answer yes to every one of

the following questions

If you answer no to any one of the

following questions

Yes it is if …..It is not paid into super in

breach of a duty owed to another

And yes it is if …..There was no knowing receipt by the trustee of the super fund

of such a breach

And yes it is if …..The trustee of the super fund

accepted the contribution in good faith and without notice of the breach

And yes it is if …..The trustee of the super fund gave valuable consideration

when accepting the contribution

And yes it is if …..The superannuation contributions were not made to defeat creditors

And yes it is if …..The superannuation pattern of making

contributions is not out of character

And yes it is if …..There is no amount that is due &

payable under the superannuation fund rules to the soon to be bankrupt person

And if there is an amount that is due & payable, yes it is if …..

The person is already bankrupt

Or if there is an amount that is due & payable and the person is

not already bankrupt, maybe yes it is if…

… another person or persons have a non-defeasible present interest in the non-bankrupt member’s superannuation,

but…

Not to the extent the non-bankrupt member has a vested in interest entitlement in super

that is presently due & payable

Remembering that deed provisions or actions that cancel a member’s interest in super due

to an insolvency event are void

Where do these questions come from?

Bankruptcy Act and Conveyancing Act (NSW) (or State equivalent)

and Australasian Annuities Pty Ltd (in liq) v

Rowley Super Fund Pty Ltd[2013] VSC 543 and [2015] VSCA 9

Bankruptcy Act 1966Section 128B & 128CSuperannuation contributions made to defeat creditors contributor is a person who later becomes a

bankrupt contributor is a third party

Bankruptcy Act 1966Bankruptcy Trustee need only show the member ….

was about to become insolvent; or contribution was out of character; ornot kept usual and proper books, accounts and records.

Bankrupt

Successfully sued

Your $uper

Bankruptcy attack of super contribution

Your bankruptcy trustee

49 In this case, I am not satisfied that Steven gave even token consideration to the interests of the company (AA), or that he gave any consideration to what was in the interests of the beneficiaries of the trust (Rowley Family Trust). No evaluative process occurred beyond the implementation of a strategy which would maximise the contributions to the Super Fund in the most tax effective way

Non Bankruptcy Act attack of super contribution

Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd

[2013] VSC 543

51 In my view, the duty to act in the interests of the company when the company is a trustee (that is, with a legal but not a beneficial interest in the assets of the trust), carries with it a duty to consider the legitimate interests of the beneficiaries. In this case, there is no evidence of any such consideration



[2013] VSC 543

56 I am satisfied that there was no intention to retire or otherwise terminate the employment of Steven and Barbara at the relevant time. Steven gave evidence at trial that at the time he received the eligible termination payment he intended to retire. I found his evidence on this issue evasive and wholly unconvincing



[2013] VSC 543

57 .. the making of such payments where there was apparently no legitimate basis for making them has clear bearing on the question whether the director’s duty has been exercised for an improper purpose. In any event, in my view the payments also demonstrate that Steven was squarely in breach of his duty to avoid a conflict of interest



[2013] VSC 543

161 I have found that Steven Rowley, in his capacity as a director of AA, breached fiduciary duties owed to the company by facilitating the making of contributions to the Super Fund either directly by AA or indirectly on behalf of individual members of the Super Fund. In so doing, he failed to act in the interests of AA, exercised his powers and duties for a collateral and improper purpose, and did not avoid conflicts of interest.



[2013] VSC 543

trustee of the Super Fund, is liable to AA (the insolvency trustee of AA) for the knowing receipt of funds diverted to Rowley Super Fund (RSF) by Steven Rowley in breach of his fiduciary duties as a director of AA. The knowledge of Steven Rowley is imputed to RSF. The liability of RSF arises under the first limb of Barnes v Addy.



[2015] VSCA 9

High Court decision in Cook v Benson considered and;

Distinguished as not apply to smsf’s - Neave JAApplied and supported – Warren CJ & Garde AJA

Only limited guidance can be drawn



[2015] VSCA 9

Duty breach & knowing

receipt

Successfully sued

Your $uper

Non -bankruptcy attack of super contrib.

Your creditor’s lawyer

Bankruptcy Act 1966 Section 116(2)(d)Superannuation is not property divisible among the bankrupt’s creditors and neither is the cash withdrawn or whatever is bought with it

The key to protecting super is to be

bankrupt!

Today super commonly is before trust deed condition of release …..

Conditional vested in interest; otherwise it is

Vested in interest

What protects super before bankruptcy?

According to the ATO nothing protects super once the trust deed condition of release and payment options are triggered


ATO’s PS LA 2011/18Superannuation funds73. A garnishee notice in respect of any tax-related liabilities may be served on a superannuation fund but it will not be effective until the debtor's (member's) benefits are payable under the rules of the fund (for example, the debtor retires or dies).


ATO’s PS LA 2011/18Superannuation funds73. ….. A notice served on the fund will generally request payment as a lump sum unless the anticipated retirement income stream can guarantee repayment within a satisfactory period of time.


Taxation Administration Act 1953,Schedule 1, Section 260-5. Statutory Garnishee power Third parties required to pay money “owing” to tax

debtor to Commissioner. Wide meaning of “owing” Failure to pay is a criminal offence Recipient may be held personally liable for the full

amount claimed


Not bankrupt

Successfully sued

Your $uper

Non bankruptcy attack of super


Validity of Garnishee Notice ineffective if issued prior to the tax debts

becoming due and payable. is ineffective against money:

in a joint account, even if tax is owing by each of the joint account holders.

subject to a prior equitable interest, such as an equitable lien held by the taxpayer’s solicitor over the moneys.


“not be effective until the debtor's benefits are payable under the rules of the fund”Shaping a super interest may lessen the nature of a person’s interest Increase the vesting age? Create a present contingent interest in

another (need more than a mere binding nomination or reversionary pension) Limit benefit to minimum account based

pension

“not be effective until the debtor's benefits are payable under the rules of the fund”

When shaping super note that provisions in governing rules of superannuation funds … to be void if beneficial interest is cancelled, forfeited, reduced or qualified

Sect. 302A Bankruptcy Act 1966

“not be effective until the debtor's benefits are payable under the rules of the fund”

When shaping super note that …every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced

Sect. 37A Conveyancing Act 1919 NSW

Trustee liability is first and foremost personal, they are liable with their own assets.But the trustee has entitlement from the assets of the trust, thereforeThe creditor can subrogate the trustee right of trust asset indemnity and thus has access to both the trust and the trustee assets

Super Trustees can be sued

Various case law and see Trustee Acts generally

Trustees

Successfully sued

Your $uper

Attack of super trustees


Trustee other assets

Trustees

Successfully sued

Your $uper

Attack of super trustees


Trustees’ assets

Directors of trustee

With respect to landholder risk of a property slip n fall and suit, the bare security trustee in the common LRBA does not help, the liability passes through the trustee. Only an active LRBA Trustee relationship might limit liability.


absent provision in the trust deed denying the right of indemnity, or circumstances indicating good reason why a trustee should not be so indemnified, a trustee is entitled to be indemnified by the cestuique trust in respect of liabilities incurred by the trustee in pursuit of functions within power where the cestui que trust is or, if more than one, are the absolute beneficial owners of the trust property


Causley v Countryside [1996] NSWCA 97

Maybe super fund beneficiaries are liable personally for the actions of the trustee even if the trustee is a company where the trustee acts at the direction of and with full knowledge of the beneficiaries? The trust deed terms may be able to limit this and again, the shape of the person’s interest in the super fund appears relevant.


Causley v Countryside [1996] NSWCA 97

Family Law Act, 1975Part VIIIB – Superannuation Interests; Sect 90MB

this Part has effect despite anything to the contrary in …any other law of the Commonwealth, ..of a State or Territory, anything in a trust deed or other instrument.nothing done in compliance with this Part by the trustee of an eligible superannuation plan is to be treated as resulting in a contravention of a law or instrument …

Family Law and super protection?

Relationship breakdown =

trust breakdown =

management, investment & control breakdown

Act quickly to vary the super interestsAct quickly to take control of the super interests


APRA funds are market value based

SMSF are sometimes market value out of date

Lumpy assets may not allow asset splitting

Can tenant-in-common an asset

Be careful about super split wording

Relationship tense and wanting to set up an smsf? Watch out for the early access risk!


Have separate investment pools with separate controls

For some keep the super in two separate funds

Ensure that the smsf rules have a deadlock mechanism

Appoint a third member or give them a binding (non-trustee) deciding vote


Super Specific Binding Financial Agreement PART VIIIA of the Family Law Act 1975 Before or during marriage and after divorce SMSF trustee a party Don’t just deal with the division of the super, but

also the management, the administration, the decision making, the benefit entitlement etc


Just like gifts under a will, if a BDBN exists and the parent is no longer a capable person and cannot

change the BDBN, this fact may be brought into the property settlement of their child’s divorce battle.

See White and Tulloch v White (1995) FLC 92-640


Is the parent BDBN really necessary?The child may need to disclaim a future BDBN, but

what happens then?

Recognise the second and subsequent marriage/de facto risk on dependents

Separate tailored smsf’s?Irrevocable binding death benefit nominations?


+

Your $uper

2nd marriage loss of family super

Her $uperHer children

+

Your $uper

2nd marriage retaining family super

Her children

We have merely covered the tip of the iceberg of asset protection issues in super

SMSF’s and non SMSF-Super Asset Protection

… and there are very many layers to contend with

Good luck!

Thank youPlease complete your

evaluation forms and return them to the registration desk

© Peter Bobbin, Argyle Lawyers Pty Ltd 2016

Disclaimer: The material and opinions in this paper are those of the author and not those of The Tax Institute. The Tax Institute did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

smsfs and asset protection€¦ · trust (rowley family trust). no evaluative process occurred...

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