Administration, Compliance, Documentation, SMSF

Old deeds can cause unwanted outcomes

SMSF Trust deed Update Review Death benefits LRBA

There are several triggering events that should necessitate an immediate review of an SMSF trust deed to avoid unintended consequences arising.

SMSF trust deeds must be regularly reviewed and properly worded to ensure unintended consequences such as member removal do not arise, according to a superannuation lawyer.

“We need to have a look at whether your trust deed is unintentionally exiting members. There are some trust deeds out there that say a person cannot be a member if they are not a trustee or a director of a corporate trustee,” Cooper Grace Ward lawyer Nathan Rutherford told attendees at his firm’s 2024 Annual Adviser Conference in Brisbane recently.

“What those deeds are trying to do is reflect the language of section 17A [of the Superannuation Industry (Supervision) (SIS) Act] within the deed, but they are not doing it properly because a person can be a member of a superannuation fund if their legal personal representative is a trustee or director in their place.

“That’s not what this wording says and we end up in a situation where if a person ceases to be a director or a trustee because they have lost capacity, they are automatically exited as a member and that might cause some problems.”

Rutherford said trustees would also need to take into account several factors from an estate planning perspective when considering whether their fund’s deed would need to be updated.

“Death benefits [are] also a reason you will need to update the trust deed. [For example], can you make a binding nomination or nominate a reversionary beneficiary under your superannuation fund trust deed?” he noted.

“Is your binding nomination going to lapse? Have we dealt with the priority issues between binding nominations and reversionary pensions?

“How do we define a dependant in the trust deed? Does it mirror the SIS Act or is it more restricted? And how is the death benefit going to be paid?”

Further, he advised trustees to review the deed before any actions are taken on behalf of the fund, particularly if the strategy in question is slightly out of the ordinary, such as using a limited recourse borrowing arrangement.

“Trustee powers and borrowing [are] something the banks are looking at. If we are looking at buying land or any other asset through a limited recourse borrowing arrangement, we need to have a look at whether the trustee has the power to borrow,” he said.

“It’s worth looking at this nice and early if you know that one of your clients is going to borrow because often we find out about this a week before settlement when the trust deed has gone to the legal team or to the risk team at the bank.

“[Then] they say: ‘Well actually this trust deed doesn’t let you borrow.’ When we are doing this a week before settling, your client is very stressed out and the bank is calling them and wondering where everything is.

“So [these things] are worth having a look at when you’re looking at your clients’ trust deeds and whether you might need to update them.”

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