QLD Minor Son is Sole Beneficiary to Superannuation - Roles of the Trustee?

[Ryaneee]

Hi all,

My wife's former partner has died. He leaves behind my minor stepson who has been awarded his superannuation death benefit of $350k. My wife has been told by the fund to set up a trust with her 6-year-old son as the sole beneficiary.

She is chatting to an accountant about this but everyone seems so shady on the rules.

What we need to know is;
1. We've been told this will be a discretionary trust. Does that sound right?
2. My wife will be charged with investing these monies until her son is 18. She wishes to purchase a duplex nearby her son's paternal cousins home down south. Her hope is that she can rent it in a holiday rental manner to derive some income while it also builds capital growth, but also use it to take her son to on school holidays to spend time with his paternal cousins.

A friend told us this would be illegal as she is the trustee. She won't be allowed to stay in the duplex as that would be her 'benefitting' from her role as trustee.

This is all very confusing. As his mother, and given that he's 6, anything he benefits from (in terms of getting to know his cousins by staying in this duplex purchased by the trust) she obviously has to facilitate. He's a small child!

Who could sue her for this? And how do you work out where the lines are blurred?

She's really worried after what her friend (who is studying law) warned her of, as the duplex holiday rental and helping her son get to know his cousins from his deceased father's side is her dream is to create holiday memories there with her son's cousins (he's enamoured by these boys!) and then on his 18th birthday say to him, 'you know our duplex we stay in for holidays to see the boys? It's yours!'. But it's illegal if the trust purchases it with her as trustee and she stays in it too with her 6-year-old?

What body oversees trusts? We know the ATO but who else?

Thank you.

 

[Jacqui Brauman]

Hi. A lot of the rules are established by each individual trust, so it is sometimes hard to give exact advice at such an early stage.

A discretionary trust would be best, but there may be some requirements that the superannuation fund will set, such as limiting the beneficiaries of the trust to your step-son and his children. The super fund may also want your step-son to have the ability to take control of the trust once he reaches a certain age. All these things can be worked out with a good lawyer to draw up the trust - I wouldn't go with an off-the-shelf trust that an accountant buys, unless there has been specific amendments for your situation.

Then, depending on your State, there are laws for trustees, so get some advice around that. There is a general rule that no trustee can benefit personally from the trust that they administer, and that they have certain obligations to invest wisely and do the best they can for the beneficiary. However (and it will depend on the wording of the trust deed that you eventually have drawn up) there are clauses which can limit liability.

Finally, some practical sense needs to prevail - you are talking about your wife being trustee for her son. The only person that would sue your wife for doing the wrong thing would be her son, or someone acting on his behalf.

Do you think that her son is going to sue her for investing in a property that was a good financial decision, that earns income and grew equity, which you all got the occasional use of? I don't think so, and I don't think your wife using the property (with her son) would be contrary to his best interests as a beneficiary either.

Just make sure your wife gets financial advice about any investment decisions she makes for the trust, and keep records of that, and common sense will prevail.