New fund is best solution for lost deed

lost SMSF deed

SMSF trustees that have lost their deed should create a new fund, rather than merging with another fund, to overcome any document losses or deficiencies.

SMSF trustees who have lost the original deed for their fund should establish a new fund and roll assets into the new entity, according to an SMSF legal expert, who said this was the safest way to deal with the issue without seeking a court order.

DBA Lawyers special counsel Bryce Figot said trustees who have lost the original deed that set up their SMSF could seek a court order, but would need to convince the court to a reasonable standard that any executed deeds actually existed to constitute the trust and there must also be evidence of the terms of the trust deed.

This evidence could include an operating bank account, which would have been established using the deed, and continuous administration of the fund, but even these may not be sufficient for a court, with Figot adding there were no certainties when going to court.

He said the best alternative to seeking a court order was to establish a new SMSF, which was also preferable to merging with another fund.

“If there are any deficiencies in a document trail, if there are concerns about documents not being properly made or you don’t have the original document or it was not properly executed, or those things cause concerns, you have to get the trail perfect,” he said during a recent webinar.

“Often the preferred solution is to establish a new SMSF and roll over the assets. As a lawyer, that gives you the strongest, most secure, most certain option.

“However, watch out for CGT (capital gains tax)‐related income tax liabilities, losing any losses in the old SMSF, stamp duty, the loss of social security benefits and that section 66 [of the Superannuation Industry (Supervision) (SIS) Act] might prevent the transfer unless the assets are cash, listed securities or business real property. Also, this strategy will probably be too late to enact once a member has died.”

He said a fund merger may work where property is involved, but it is an untested area of law even though there is an exception under law.

“My concern about a merger is that conceptually the fund with the deficiency is still sticking around and this does not address the fundamental problem of killing off that fund so that in the future there is no need to deal with the document deficiencies,” he said.

“It gets little airplay, but there is an exception [in section 66 of the SIS Act] but it does not define what a merger is, which is why I approach them with caution as there is so little guidance around them. I can’t say much more about them because there is not much to say.”

He added trustees who did not want to establish a new fund could also carry out a deed of variation with as many parties as possible, noting this was also a popular strategy, but could easily be challenged.

Alternatively, trustees could collect as much evidence about the status and operation of the fund now, including statutory declarations, so that if a court order was applied for in the future, the evidence would be in existence.

“This could work, but remember there is no guarantee to what outcome you will get in a court,” he said.

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