The SMSF trust deed can easily be overlooked by auditors and advisers due to its lengthy, legal and technical nature, but the new super reforms have reinforced its importance, an auditor has warned.
“It’s safe to say that not all SMSF auditors love reviewing SMSF trust deeds, but the alternative of ignoring the trust deed can have dire consequences, even when the fund is a simple one,” ASF Audits technical services executive manager Shelley Banton said.
“The life cycle of an SMSF can be complicated.”
Banton explained there were key activities that warrant a trust deed review.
“A trust deed will need to be reviewed, and potentially updated, when the fund borrows,” she revealed.
“Funds whose trust deeds pre-date 2007 are not likely to have the ability to borrow for a limited recourse borrowing arrangement.”
Another trigger event for deed reviews that auditors and advisers should be on top of is when the fund pays a benefit.
“It is important to ensure that the fund can pay out benefits in the manner chosen by the trustee, such as an in-specie transfer,” Banton said.
“[In addition] when the fund commences a pension – members must be able to elect the type of pension that they want, such as a transition-to-retirement income strategy.”
Lastly, when the fund undertakes estate and succession planning, there need to be clear rules as to how a binding death benefit nomination is to be effected and the impact of the death of a fund member.
“Difficulties can arise when the fund wants to undertake an activity the trust deed does not allow or when a trustee wants to rely on what is believed to be the current fund rules,” Banton noted.
She underscored SMSF advisers should be aware that considerable time, effort and money will be required to try and remedy trust deed problems, and usually it is too late.
“A compliant trust deed is one of the keys to ensuring that the SMSF meets the requirements of the Superannuation Industry (Supervision) Act and the Superannuation Industry (Supervision) Regulations, and is eligible for tax concessions and superannuation guarantee contributions,” she said.
“And it quickly becomes a critical document in those circumstances where there is a dispute between the trustees or it becomes the subject of a claim between beneficiaries.”