SMSF advisers and trustees should avoid using deeds that attempt to explain superannuation law when setting out their terms as these are often inadequate and can limit the actions of the fund to very limited channels, a superannuation lawyer has pointed out.
Cooper Grace Ward partner Clinton Jackson said in a recent court case – In the matter of Gainer Pty Ltd (2024) NSWSC 1138 – one of the key issues was the specific nature of the deed and the wording within certain rules that was too restrictive for this type of document.
“This was a particularly prickly deed, but it’s also one of those lovely prescriptive deeds that help trustees who don’t know much about the Superannuation Industry (Supervision) (SIS) Act understand everything they need to do by picking up the deed and only having to read the deed,” Jackson said during the legal firm’s Annual Adviser Conference in Brisbane today.
“From our experience, these types of deeds tend to make things difficult when you get complex situations because they write a summarised version of the superannuation legislation and that is not flexible to then cater for all the various circumstances that potentially come up when administering these files.”
Looking specifically at the deed involved in the case, Jackson noted it had a rule that stated where a member died, that person’s legal personal representative (LPR), subject to their consent, was to be appointed as a replacement trustee or director.
“In this situation their LPR should fill that role because that’s what the SIS Act provides for, but we had an administrator who didn’t want to take that role on, but this clause effectively provides for another person who should be there making that decision,” he said.
Cooper Grace Ward associate Sarah Camm, who worked on the case, added the rule was flawed because it had too much detail.
“There’s so many caveats in that clause – subject to the consent, assuming the constitution allows for it – but what if there is no consent? What if the constitution doesn’t permit that?” Camm said.
“The deed set up this rule and allowed there to be exceptions for it, but didn’t provide what was to happen when those exceptions applied. It was really unhelpful and left the trustee in a really difficult spot.”
Jackson added: “We see lots of these deeds, unfortunately, which cause problems because they are so prescriptive rather than just having general rules that the members can appoint trustees and directors, and then we make sure as their advisers that rule complies with section 17a of the SIS Act.
“Instead, these types of deeds shoehorn people into going down a particular path without much flexibility.”
