The wide-ranging responsibilities of SMSF trustees to all fund members are often misunderstood and unappreciated by their critics, says Graeme Colley, Director, Technical and Professional Standards, of the SMSF Professionals’ Association of Australia (SPAA).
“There is a common misconception that trustees are some how a ‘law unto themselves’ but nothing could be further from the truth. Their legal responsibilities are wide-ranging and onerous, and penalties apply if they don’t comply.”
Colley says that criticisms of SMSFs, whether it be around asset allocation, the use of leverage, or their administration, often fail to take into account the obligations trustees have to all fund members, not just themselves.
“They are often told to take decisions that would put them at odds with their legal duties. All this simply demonstrates is the lack of knowledge of what trustees’ responsibilities entail.”
Under the SIS law, trustees have a legal obligation to:
– Act honestly in all matters concerning the fund;
– Exercise the same degree of care, skill and diligence as an ordinary person would exercise in dealing with the property of another that they were morally bound to provide for;
– Exercise their powers and duties in the interests of beneficiaries – which means they do not act in their own selfish interest but consider all the members of the fund equally.
In addition, trustees are obliged, among other things, to execute the terms of the trust deed; defend the trust; be impartial among beneficiaries; account for actions and keep beneficiaries informed; not delegate; not profit; and not be in a conflict of interest position.
“In SPAA’s experience, trustees have largely accepted these responsibilities, showing a capacity to quickly adapt to any changes in the rules.
“Having set up their SMSFs to ensure they are self-sufficient in retirement, they understand better than anyone the importance of complying with the legislation to ensure the fund works to the benefit of all members,” he says.
