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The challenge of keeping your SMSF trust deed current: even in the accumulation phase

Recent legislative change allowing contributions-splitting between members requires trustees of SMSF's, and their advisers, to consider whether to update the fund's deed — even if the fund is in the 'accumulation phase'

Change, ... and change again

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:

  • One was the requirement for each superannuation fund which was classified as an "excluded fund" to choose, by October 1999, whether to become an SMSF — and so to be regulated by the ATO. Trust deeds for funds that chose to become SMSF's had to be amended to ensure they met certain minimum criteria.
  • The other was the impact of financial services reform, which came into full effect in March 2004, on SMSFs. After that change, funds required a trust deed that enabled compliance with those provisions for the admission of new members (by providing a form of product disclosure statement).

Contribution splitting: a possible need for change now

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.

Challenges to trustees...

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.


Lawyer in Profile

Paul Ellis
Paul Ellis
Special Counsel
+61 3 9258 3524

Qualifications: LLB, Deakin University, BA (Political Science), Monash University

Paul is a Special Counsel in Maddocks Government and Not-for-Profit Commercial team. He specialises in:

  • the establishment, governance, operations, regulation and administration of charities and other not-for-profit entities,
  • in commercial arrangements for the procurement or supply of goods and services, including technology services, and
  • in compliance and enforcement activities undertaken by government agencies.

Paul is Maddocks' main authority in relation to the Personal Property Securities Act 2009.

He has an in-depth understanding of the government sector, as his experience prior to Maddocks includes 13 years with the Victorian Department of Justice.

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