An SMSF specialist has warned advisers and their clients to be wary of fund trust deeds that contain unique clauses as they may result in having to perform unwanted actions.
“One thing to be mindful of is just to check you don’t have a quirky deed. Quirky deeds can be very unhelpful by trying to be helpful,” Heffron senior SMSF technical specialist Annie Dawson said during a webinar presentation last week.
To this end, Dawson referred to deeds she has seen recently with specific clauses included to make the operation of the fund easier.
“We’ve seen some deeds where [a condition will stipulate] something like if you have a trustee or a director who’s unwilling to act for a period of time, say six months … the fund must be wound up,” she noted.
In particular, she suggested it was very important for advisers to review the trust deeds of clients they are servicing for the first time to avoid being in the position of having to take unwanted operating actions.
Heffron head of SMSF technical and education services Lyn Formica pointed out recognition of unique clauses in trust deeds can be critical during a fund wind-up.
“The last thing you want to do when you’re winding up a fund is to be forced to do a deed amendment because [of] some quirky clause in there that’s requiring me to do something that I didn’t want to do,” Formica said.
She warned advisers to ensure the SMSF trust deed enables troublesome situations, such as having no trustees left in the fund prior to a wind-up, to be avoided.
“[In these situations] unfortunately some poor bunny is going to have to [take] on [the trustee role], it might be an adult child or maybe a spouse. They’re going to have to step in as trustee of the fund [to allow us to] wind up that fund quickly [to avoid having the ATO take any compliance action],” she said.