You may be mistaken for thinking the hot topic for SMSFs involves leveraging property investments or even strategic asset allocation. In fact, the humble trust deed is one of the most topical of all SMSF-related issues I have come across.
It’s fair to say the trust deed is one of the more vanilla components of the SMSF process and can easily be overlooked. The reality is the trust deed is your SMSF clients’ governing document and framework for operating their fund. This is because it outlines the rules, responsibilities and requirements SMSF clients need to follow in running their own superannuation fund, and is drafted by a legal professional.
To many, this may seem fairly straightforward, but it is important to understand a number of aspects about how your clients’ funds operate and how the deed can determine the end outcome – particularly in the event of a dispute.
When it comes to your clients’ retirement savings, naturally they are looking to build enough savings to support their retirement and perhaps to make possible estate planning provisions for any dependants.
The right trust deed can allow for this, but an ill-drafted deed will prohibit it.
You can help clients discuss what they want to achieve within their SMSF to ensure the deed caters for their objectives.
In many cases, the standard SMSF trust deed from a quality provider can cover most clients’ needs. But if there is an additional caveat your client wants to capture or achieve, it may require tailoring. This brings up the next consideration.
Review of trust deeds should be undertaken regularly and at least annually.
In the event there is a significant change, and certainty where there is a change to superannuation law, including when the 2016 federal budget changes are legislated, a trust deed should also be revisited.
This doesn’t necessarily mean the deed needs to be redrafted or changes are required to be made.
If changes are constantly being made to the deed, you and your client will need to keep copies of all the amendments so you can form a picture of the deed at any point in time.
If your client has specific tailoring and special clauses inserted into their deed, be careful that any wholesale deed replacement doesn’t undo the previous strategy (unless that strategy is no longer relevant).
When considering some of the 2016 federal budget announcements, the proposed changes to the treatment of pensions will need to be carefully considered. For example, if your client has a transition-to-retirement (TTR) pension from their fund, but then when retired fully they want their pension to convert to an ordinary superannuation pension to enjoy some tax benefits in retirement, this needs to be provided for in the deed. If their SMSF deed says the TTR pension continues indefinitely until a change is made, your client could be paying unnecessary tax within their SMSF.
Another aspect for SMSF clients to remember is longevity risk. If an SMSF client were to outlive their SMSF, the remaining trustees (together with the legal personal representative) will need to ensure any remaining benefit in the fund is paid out. As part of the estate planning processes, the trustee may have decided how the benefits should be paid, to who and how much they get.
An estate plan around super is only as good as the trust deed that governs your client’s SMSF as superannuation is not an estate asset. You need to ensure that, to the extent permissible under superannuation law, your client’s SMSF trust deed means their wishes can be fulfilled in the event they’re not there to ensure it happens.
Trust deeds are vitally important to the efficient operation of client SMSFs. Only through well-documented and well-understood trust deeds can you give your clients confidence to fulfil their dreams.
