Self-managed super fund (SMSF) trustees need to be wary of implementing differential voting rights within a fund as this course of action adds a layer of complexity in regard to governance and compliance issues, according to a specialist superannuation lawyer.
The inclusion of differential voting rights in SMSF trust deeds is becoming more common to ensure the members with the largest balances are able to control what the fund does.
"My view about that is these clauses are not a good idea. They can lead to potentially very bad outcomes quite simply because people don't understand their duties and they don't understand their responsibilities," Harwood Andrews Lawyers principal Rob Jeremiah said.
If an SMSF has a provision to allow for differential voting rights, the obligations placed on the controlling trustees are more onerous than those considered standard super fund duties, such as taking on the responsibility of fiduciary duties.
"In regard to trust law and fiduciary duties, there is no chance they'll understand that. Most people who go to university to consider trusts can't understand these issues and that's why we finish with a number of these issues in the courts," Jeremiah said.
The difficulty arises where the trustees with the larger balance members cannot be seen to be making decisions favouring their own situations and not those of the other members.
"The inclusion of differential voting rights of trustees of superannuation funds based on their respective member account balances is fraught with danger from the perspective of the trustees," Jeremiah said.
"In many instances it will lead trustees into a breach of their duty to the members of the SMSF as a whole because they're unaware of what they're doing. And so to have those provisions in the deed is extremely dangerous."
