SMSF Legal Question

I understand a single member SMSF can have that member as the sole director of the corporate trustee. My question is can the member also be the sole shareholder? Or does it need an additional shareholder?

Thanks.

SYD
 
I understand a single member SMSF can have that member as the sole director of the corporate trustee. My question is can the member also be the sole shareholder? Or does it need an additional shareholder?

Thanks.

SYD

There are no restrictions under the sis act on shareholdings. anyone could be a shareholder. But from an estate planning perspective think what would happen if you are sole shareholder/director die? Under the corporations act the LPR will take control of the company, and hence the SMSF. The wording of the act is vague and this LPR can be prior to probate is granted.

The company and SMSF would also be out of control until the LPR takes the reins.

Upon death the trustee decides who will get the deceased member' death benefits - out of your dependants and your estate. so whoever controls the trustee has immense powers.

Think of a BDBN and your will as well as terms of the SMSF deed.
 
Thanks Terry_w.

LPR = Legal Personal Representative.

BDBN = Binding Death Benefit Nomination

Please let me know if these are incorrect.

If the arrangement has the sole shareholder, sole director and sole member being the same person, is there any risk the arrangement can be considered a sham?

Thanks,

SYD
 
There is no sham as the trustee is the company, not the shareholder or the director. This is why with SMSF with individual trustee a single member fund has to have two trustees.
 
Thanks Terry_w.

LPR = Legal Personal Representative.

BDBN = Binding Death Benefit Nomination

Please let me know if these are incorrect.

If the arrangement has the sole shareholder, sole director and sole member being the same person, is there any risk the arrangement can be considered a sham?

Thanks,

SYD

Yes that is correct.

Why would you think it could be considered a sham? The company is a 3rd party holding assets on trust for the member.
 
Yes that is correct.

Why would you think it could be considered a sham? The company is a 3rd party holding assets on trust for the member.

I am thinking a person cannot hold assets on trust for themselves.

So even though there is no other person involved, having a company as trustee does not make the arrangement a sham.

Could this arrangement also work for non-super trusts where you are the sole beneficiary?

Thanks.

SYD
 
I am thinking a person cannot hold assets on trust for themselves.

That's right if they are the trustee. However, technically speaking a separate legal person is the trustee, hence a trust can be formed.

So even though there is no other person involved, having a company as trustee does not make the arrangement a sham.

Of course it's not a sham in the legal sense of the word - unless you are trying to represent something otherwise than it legally ought to be?

Could this arrangement also work for non-super trusts where you are the sole beneficiary?

It better otherwise 90% of small business operators would be running shams.
 
I am thinking a person cannot hold assets on trust for themselves.

So even though there is no other person involved, having a company as trustee does not make the arrangement a sham.

Could this arrangement also work for non-super trusts where you are the sole beneficiary?

Thanks.

SYD

See NSWSC case of Smith v Public Trustee - Deceased was director of trustee, sole shareholder, appointor and only beneficiary to ever receive a distribution. Still a valid trust!
 
I understand a single member SMSF can have that member as the sole director of the corporate trustee. My question is can the member also be the sole shareholder? Or does it need an additional shareholder?

Thanks.

SYD

Hi Syd, Yes that is correct.

Cheers, Ivan
 
I am thinking a person cannot hold assets on trust for themselves.

So even though there is no other person involved, having a company as trustee does not make the arrangement a sham.

Could this arrangement also work for non-super trusts where you are the sole beneficiary?

Thanks.

SYD

When the SIS Act was being drafted this issue of a individual acting as trustee and beneficiary was raised. It became a concern in legal circles and became a issue of debate so the SIS Act was drafted to avoid the issue so that a sole member and sole human trustee are not possible...More from the issue of contract law interestingly....In the SMSF owned a factory it cant very well lease it to the same member. ie John leases to John. You cant contract with yourself. It was felt such funds could be non-compliant and have non arms length income (Called special income then). The whole sole member, sole human trustee issue was averted by drafting SIS that way so that one member, one human trustee can never occur.

The original 1993 Explanatory Memorandum is VERY hard to find as it predates even computerised documents. It was typed and isnt archived on the web. I had a copy sourced from the Library in Parliament House and it made very interesting reading and explains a lot about the peculiar issues contained in SIS. I should seek another copy....
 
When the SIS Act was being drafted this issue of a individual acting as trustee and beneficiary was raised. It became a concern in legal circles and became a issue of debate so the SIS Act was drafted to avoid the issue so that a sole member and sole human trustee are not possible...More from the issue of contract law interestingly....In the SMSF owned a factory it cant very well lease it to the same member. ie John leases to John. You cant contract with yourself. It was felt such funds could be non-compliant and have non arms length income (Called special income then). The whole sole member, sole human trustee issue was averted by drafting SIS that way so that one member, one human trustee can never occur.

The original 1993 Explanatory Memorandum is VERY hard to find as it predates even computerised documents. It was typed and isnt archived on the web. I had a copy sourced from the Library in Parliament House and it made very interesting reading and explains a lot about the peculiar issues contained in SIS. I should seek another copy....

Here it is Paul
http://www.aph.gov.au/binaries/libr...ndustry (supervision) consequential amdts.pdf

Also under trust law a person cannot hold property on trust for themselves as there is no separationn of legal and beneficial interests.
 
Thank you for your replies. It has cleared up my misunderstanding.

Also good points made by Terry_w about considering wills, the Legal Personal Representative and Binding Death Benefit Nomination.

SYD
 
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