Replacement Trustees of a self-managed superannuation fund

Recently, Principals of Worrells were appointed as replacement trustees of a self-managed superannuation fund (“SMSF”) pursuant to section 80 of the Trusts Act 1973 (Qld).

The SMSF was originally formed to purchase a commercial property from which the original trustees and beneficiaries (who we will refer to as Mr & Mrs Smith) operated a small business.

Over time, Mrs Smith sadly passed away, and the business closed. Mr Smith later remarried and subsequently leased the commercial premises to a third party.

Following Mr Smith’s remarriage, he changed the binding death benefit nomination to his second wife (resulting in her being the sole beneficiary of the assets of the SMSF upon Mr Smith’s death).

As we know, time marches on for us all, and following Mr Smith’s passing:

• his second wife became the sole beneficiary of the SMSF,

• his two adult sons were appointed as trustees of the SMSF, and

• a dispute arose between Mr Smith’s second wife and his two sons in respect of the validity of the binding death benefit nomination.

The dispute led to the two sons successfully applying to the Court to have the binding death benefit nomination deemed invalid (due to terms of the original SMSF trust deed not being correctly followed by Mr Smith). Mr Smith’s second wife then later successfully applied to the Court to have Worrells Principals replace the two sons as trustees of the SMSF.

As part of that appointment, our office was to wind up the affairs of the SMSF and make a determination on the final binding death benefit nomination. After obtaining the SMSF records from the former trustees, we took steps to:

1. Liquidate the SMSF’s remaining assets by:

   • engaging an independent agent to market and sell the commercial property, and

   • closing the SMSF’s remaining bank accounts.

2. Engage with the SMSF’s external accountants and auditors to draft and lodge the SMSF’s outstanding tax returns (which date back to the 2022 financial year).

3. Review the SMSF records (together with submissions from the potential beneficiaries of the SMSF), to reach a determination on the final binding death benefit nomination.

4. Pay the SMSF’s outstanding creditors and distribute the balance of SMSF monies in accordance with our final binding death benefit nomination determination.

Timing was also an issue as pursuant to section 17A and 17B of the Superannuation Industry (Supervision) Act 1993 (Cth), as replacement trustees our office had only six months from the date of our appointment to finalise the winding up of the SMSF to avoid the risk of the SMSF potentially being deemed non-compliant.

Anticipating delays, we liaised with the Australian Taxation Office (ATO) to allow additional time for the replacement trustees to finalise the winding up the SMSF. In response, the ATO advised that they would exercise their discretion in accordance with PSLA 2006/19 and refrain from issuing a notice of non-compliance for the SMSF for an extended period, in their circumstances, to allow for the liquidation of the remaining assets and the winding up of the SMSF.

Whilst not all parties agreed with our final determination regarding the binding death benefit nomination, the process ensured that the SMSF’s assets were liquidated at market value, outstanding taxation obligations were fulfilled, all SMSF creditors were paid, and importantly, the SMSF remained compliant.

Worrells, with 34 Principals across our multiple locations, not only assist companies and individuals to recover from difficult financial situations; we also help to find equitable and acceptable outcomes to long-standing disputes. Contact us for a complimentary and confidential discussion.