SMSF Trust Deed - A warning for SMSF Professionals to avoid the pitfalls
SMSF Trust Deeds are not a set-and-forget document. Deeds should be regularly updated to ensure not only compliance with the various laws governing self managed super funds, but to avoid any legal complications which may arise as a result of not keeping the fund’s deed up to date.
SMSFs operate within a complex framework of legislation and regulations. They are not only governed by the Superannuation Industry (Supervision) Act but also are impacted by general Trust Law, the Income Tax Assessment Act and, if the fund has a Corporate Trustee, the Corporations Act also has an impact. Changes made to legislation have the power to render a fund non-compliant, restrict what a fund can or cannot do, and cause issues in relation to estate planning.
Many believe that if the legislation allows for a particular course of action, then the fund is ok to proceed; unfortunately, this is not the case. As the fund’s trust deed is considered the fund “rule book” if the deed states something is not allowed or is silent on a particular course of action then the fund cannot proceed.
Over the last few years we have seen changes arise in the following areas
· Ability to make a Non-Lapsing Binding Death Benefit Nominations
· The introduction of the SuperStream legislation for contributions and rollovers
· Allowing for the release of Division 293 payments & excess contributions
· Changes to the contribution rules and how they are affected by the Total Super Balance
· Allowing for different types of assets such as crypto currency
· Allow for the electronic signing of documents
There have been a number of cases where disputes arose between not only SMSF members but also their beneficiaries due to the trust deed not being kept up-to-date which led to ambiguity and confusion and resulted in cases being heard in court.
A case well known by the industry is Donovan v Donovan [2009] QSC 26. In this case the Queensland Supreme Court held that a trust deed that stated that a Binding Death Benefit Nomination had to meet “statutory requirements” needing to comply with Superannuation Industry(Supervision) Regulation 6.17A to be valid. As the deed referenced the legislation this regulation was be deemed to be applicable, including that a death benefit nomination ceases to have effect3 years after the day it was last confirmed by the member, which meant that not following these requirements held the nomination to be invalid.
This then leads us to the case of Hill Vs Zuda (2022)whereby a Binding Death Benefit Nomination was thought to be invalid as it didn’t comply with Regulation 6.17A. It was found that as the deed referred to Binding Death Benefit Nominations and made no reference to Regulation 6.17A the legislation was found by the court to not apply and the deed itself was the rule book for the requirements.
The above are just two examples highlighting that keeping the trust deed up to date is crucial for trustees. However, it is also extremely important thatSMSF professions make sure they regularly review their clients trust deeds. There have been a number of cases where a funds auditor was found to be liable for losses, including the cases ofCam & Bear Pty Ltd vs McGoldrick (2018) & Ryan Wealth Holdings Pty Ltd v Baumgartner [2018] NSWSC 1502. Whilst these relate to the auditor being found liable, SMSF professionals should take caution as if there is conflict within the deed which causes adverse consequences then the Trustee orBeneficiary may hold the SMSF Accountant responsible. This then may see the accountant taken to court for not exercising their duty of care which can easily be avoided by ensuring the deeds are reviewed regularly.
At Prime our SMSF division offers a review service to ensure that not only are the funds deeds up to date but all the documentation sitting behind the scenes are both Valid and Compliant. If you would like to utilise this service please contact me to discuss further.
