BDBNs, Trusts

Deed specificity key to certainty

SMSF trust deed

A trust deed needs to be very specific in its governing rules to ensure an SMSF is not subject to unwanted legal or regulatory conditions.

A specialist legal firm has recommended including express conditions in an SMSF trust deed to ensure a fund is not inadvertently caught by potentially detrimental Superannuation Industry (Supervision) (SIS) Regulations.

Specifically, DBA Lawyers senior associate William Fettes was warning against situations where the wording of a trust deed might expose an SMSF to being subject to rules like having its binding death benefit nominations (BDBN) lapse after being in place for three years as is dictated by the SIS Regulations.

“We take the position you should be comfortable with the deed only when it has got an express ousting of the SIS Regs in relation to the BDBN rules there,” Fettes noted.

Related to the theme of expelling certain elements of SMSF documentation, he pointed out when looking to implement an effective BDBN revoking previous death benefit orders in an effective manner is imperative.

“One of the things we’re seeing in recent times is revocation [of previous BDBNs] is becoming more of an issue because there is a bit of variability in instruments that don’t always revoke properly or we see actions that might constitute a revocation, but it’s unclear because the deed is a bit open in relation to the BDBN rules for the SMSF,” he noted.

“What we tend to want to see is [something that makes it very clear] the BDBN revokes all prior nominations or directions in respect of that fund.”

However, he recognised caution too needs to be exercised regarding this objective and course of action.

“You could actually word that too broadly and potentially revoke a nomination in respect of a different SMSF or other superannuation [benefit],” he said.

“But you don’t want to have a situation where you’ve got competing [death benefit] nominations.”

When having to make revocations to prior death benefit nominations, he stressed the importance of keeping a complete document trail for the fund.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital