What the **** is a Fetter you may ask?
Just read a great little article which is a timely reminder for trustees and those with interests in trusts.
A fetter is some sort of restraint or something that restricts freedom.
There is a legal principle that trustees of trusts must make their own decisions and they cannot delegate these powers to others. A trustee cannot "fetter their discretions".
There can be an exception if the trust deed expressly authorises this. If the deed doesn't then the trustee will breach their duty and any decision made will be invalid.
This is important with SMSFs in 2 main areas:
1) Making of a Binding Death Benefit Nomination, BDBN.
A members interest is a SMSF is an interest held on trust. It doesn't form part of the member's estate when the member dies. It is the trustee who decides where the member's death benefit will be paid. The trustee is restricted to who they can pay, but there is an element of discretion involved. To remove this trustee discretion the member can make a BDBN which compels the trustee to pay the death benefits to a specific person(s). This is removing the trustees discretion and is a breach of trust law - unless the deed specificially allows this.
2) Reversionary Pensions.
If a pension, or income stream, is being paid from a superfund to a member that member can direct the trustee to revert the pension to a spouse upon the member's death. But again this is a fettering of the trustee's powers and will be invalid without express provision in the SMSF deed allowing this.
This law is also applicable to discretionary trusts. Upon a beneficiary's death, that beneficiary cannot direct the trustee to pay income to certain persons for example. It may be possible to leave a 'memoranda of wishes' about how you would like the next trustee or controller of the trust to act, but the trustee could not be compelled to follow wishes or instructions. If they agree to do so they agreement would be invalid.
A person may appoint an attorney to look after their affairs, but this attorney generally would not have the power to operate trustee as the attorney for the donor. They would have to be appointed trustee in their own right.
In NSW There is a restricted exemption for a trustee absent from NSW to delegate their powers for up to 2 years.
Just read a great little article which is a timely reminder for trustees and those with interests in trusts.
A fetter is some sort of restraint or something that restricts freedom.
There is a legal principle that trustees of trusts must make their own decisions and they cannot delegate these powers to others. A trustee cannot "fetter their discretions".
There can be an exception if the trust deed expressly authorises this. If the deed doesn't then the trustee will breach their duty and any decision made will be invalid.
This is important with SMSFs in 2 main areas:
1) Making of a Binding Death Benefit Nomination, BDBN.
A members interest is a SMSF is an interest held on trust. It doesn't form part of the member's estate when the member dies. It is the trustee who decides where the member's death benefit will be paid. The trustee is restricted to who they can pay, but there is an element of discretion involved. To remove this trustee discretion the member can make a BDBN which compels the trustee to pay the death benefits to a specific person(s). This is removing the trustees discretion and is a breach of trust law - unless the deed specificially allows this.
2) Reversionary Pensions.
If a pension, or income stream, is being paid from a superfund to a member that member can direct the trustee to revert the pension to a spouse upon the member's death. But again this is a fettering of the trustee's powers and will be invalid without express provision in the SMSF deed allowing this.
This law is also applicable to discretionary trusts. Upon a beneficiary's death, that beneficiary cannot direct the trustee to pay income to certain persons for example. It may be possible to leave a 'memoranda of wishes' about how you would like the next trustee or controller of the trust to act, but the trustee could not be compelled to follow wishes or instructions. If they agree to do so they agreement would be invalid.
A person may appoint an attorney to look after their affairs, but this attorney generally would not have the power to operate trustee as the attorney for the donor. They would have to be appointed trustee in their own right.
In NSW There is a restricted exemption for a trustee absent from NSW to delegate their powers for up to 2 years.
