“These kinds of internal disputes will often mean that simple day-to-day functions for the SMSF cannot be completed, for example, finalising accounts, disposing of investments and paying benefits,” he said.

Speaking at the recent Tax Institute Superannuation Summit, Broderick said there are a number of ways in which trustees and members can resolve or even avoid internal disputes, including having separate funds.

“This is the simple solution, in particular for unrelated parties. For example, such as business partners who want to ‘co-invest’ their super could still do so with their own SMSFs, whether that be by co-ownership (tenants in common), investment via an unrelated trust or company, or investment via a regulation 13.22C unit trust or company,” he said.

He added that although such co-investment vehicles are not free from trouble in dispute, they are easier to deal with than a dispute within an SMSF.

“Even siblings, as a general rule, should avoid being in the same SMSF. Separate sibling SMSFs don’t have as much flexibility as unrelated SMSFs would because they will be deemed to be related parties and related trusts under Part 8 of the SIS Act,” he said.

“For example, sibling SMSFs would not qualify as an unrelated trust and could not acquire assets from each other unless one of the exemptions under section 66 of the SIS Act applied. However, they can still co-invest via tenants in common or regulation 13.22C unit trust or company arrangements.”

He continued that, as a general rule, children should be kept out of the SMSFs of their parents.

Broderick said another way to avoid internal disputes in SMSFs is by using a corporate trustee structure.

“Common law provides that unless the trust deed of the trust provides otherwise, all decisions of trustees must be unanimous. This creates a problem in a dispute context as a rogue minority trustee can hold the majority trustees ‘to ransom’ whereas, for corporate trustees, the general position is that the majority of directors may make a decision,” he said.

Furthermore, he said another issue with individual trustees is that each of the trustees is required to sign documents.

“Therefore, even if the trust deed provides that the majority of trustees can make a decision, if the minority trustee refuses to sign a document, the remaining trustees will be left in a difficult position in deciding how to enforce the trustees’ decision,” he said.

“Another advantage with a corporate trustee is that members do not need to be shareholders. Therefore, the ‘controllers’ of the SMSF could hold the shares and, therefore, could remove rogue directors.”

Tailored trust deeds and associated documents are another consideration to help the smooth running of an SMSF, said Broderick.

He noted that where an SMSF’s membership includes persons outside of the nuclear family, it is prudent to prepare documentation at the commencement of the SMSF about how the fund will be managed and how parties can exit if they need to.

“For example, this would be similar to what you would expect with an investment in a company via a shareholders’ agreement or unit trust via a unit holders’ agreement,” he said.

“This could be incorporated into the SMSF trust deed itself or via a separate agreement. The latter is especially recommended where the SMSF has a corporate trustee as the directors will not necessarily be bound by tailored provisions in the SMSF trust deed.”

Broderick said some of the provisions could include how meetings are conducted, how voting occurs, whether members can compel an exit, what happens upon the death of a member, as well as a dispute resolution provision binding on the parties.

Finally, Broderick said another method of controlling an SMSF is the use of a “guardian” position in the SMSF.

“The guardian can have powers such as the power to appoint and remove trustees or to determine who will receive benefits or rights of veto such as a right to prevent the appointment/removal of a trustee or the right to prevent the payment of benefits to a particular person,” he said.

“The position of guardian could be helpful where children have been appointed as members and trustees/directors. For example, if the surviving parent is predisposed to their children becoming members of their SMSF but that parent wishes to preserve their ultimate control of the SMSF, the parent could be appointed to be the guardian of the SMSF.”

However, he warned the appointment of a guardian will not always solve control issues for the trustee.

“For example, if there are no provisions for the succession of the position of guardian after the guardian’s death, guardians are stalemated, or there is no dispute mechanism for guardian disputes,” he said.

“Therefore, it is important that the SMSF trust deed appropriately deals with such issues.”