SMSF trustees should implement detailed rules and correct commencement documentation into trust deeds to prevent pensions being contested, an SMSF technical expert has advised.
Smarter SMSF chief executive Aaron Dunn said a trust deed can become vulnerable to a challenge if there was a disconnect between the rules of a fund and the processes put in place to provide a pension.
“We need to look at how prescriptive the deed rules are to pay income streams and line up their commencement documentation to avoid any challenge,” Dunn said.
“With binding death benefit nominations, where we will see [pension] information get challenged is whether the trustees have followed what the deed said, from a procedural aspect, around the way in which an income stream has commenced.”
He said disputes can be resolved through resolutions, but noted some superannuation funds may require additional documentation to avoid future challenges.
“We see deeds that say ‘we must prepare this pension agreement or pension contract’, then the contract will set out all of the terms and conditions,” he noted.
“If [trustees] have prepared resolutions, but it requires something different, again you can invalidate the way in which the income stream will operate.”
In addition, he suggested a secure resolution arrangement can be prepared for trustees and the fund’s members in regards to the income stream, which would become a paramount document.
“What the paramount document allows you to do is say ‘everything that is contained within this document or around the income stream, for example, a reversionary pension, takes precedence and will rank higher than any other document that is available’.’”
He added that in some circumstances where funds do not have strategies or prescriptive information, this can result in computations or repurchases, which will have significant repercussions on transfer balance cap information, age pension entitlements and death benefit income streams.
