Most practitioners accept that changes to the law governing superannuation funds occur regularly. Primarily, these changes touch on issues about payment of benefits — for example, taxation of pensions, or the terms on which they may be paid.
Given that such changes relate primarily to members in or nearing the pension phase of a fund, their impact is not felt immediately by members in the accumulation phase. However, every so often changes occur which impact on funds or members in this phase. Accordingly, trustees and their advisers need to consider the need to update the SMSF's trust deed.
Some changes definitely require update in "accumulation phase"
Practitioners will recall two clear examples of legislative changes that required deed changes for those in the accumulation phase:
Another change that may require deed changes for those in the accumulation phase relates to superannuation contributions-splitting. From 1 July 2006, trustees of superannuation funds will be able to offer members the opportunity to split eligible superannuation contributions made after 1 January 2006 with their spouse. This raises the question: do I need to update my deed (or advise my clients to consider updating their deed) to take advantage of this change?
The answer is that most trust deeds will not make specific reference to contributions-splitting. This is because (although the proposal has been in the pipeline for some time) the regulations relating to splitting were not finalised until December 2005.
Even so, many of those trust deeds will also contain general provisions relating to acceptance of contributions, or adjustments to member accounts, which may be able to be read as accommodating contributions-splitting.
However, caution should be exercised in making interpretations that general powers allow contribution splitting. If there is any uncertainty as to whether a trustee has the power to take some action, generally that uncertainty should be addressed by conferring that power on the trustee explicitly. The fact that SMSFs are tightly held, generally within the one family, should not be regarded as a factor reducing the likelihood of a trustee's powers being challenged.
The case of Katz v Grossman (reported last month in ClearLaw) highlights how disaffected family members may challenge the actions of an SMSF trustee. Often their motivation is to gain a share of a death benefit — either as a dependant and member of the fund or by the money being directed to a deceased member's estate.
It is possible that a disaffected person may challenge the action of a trustee in processing a contributions-split request — even if the split had been requested by the relevant member — on the basis that the trustee did not have the power to process the request. If this uncertainty can be avoided by making a simple amendment to the SMSF Deed which explicitly confers the relevant power on the trustee, then that amendment should be effected.
This approach is appropriate given that the practitioner's primary responsibility is properly advising the client and assisting them in the due administration of the trust.
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.