SMSF trust deed updates

As trustee of your SMSF or a director of the trustee of your SMSF, it is sensible for you to consider updating your SMSF's deed every few years to help ensure your SMSF remains compliant.

Risks with an old deed

It can be dangerous for an SMSF to have an old deed with irrelevant and invalid clauses. For instance, those clauses may increase the risk that the trustee might:

• exercise a power that the law no longer allows — for example, to set up a pension that would be in breach of current superannuation law and cause your SMSF to lose its tax advantage status; or
• exercise a power, without all the relevant provisions in the deed — for example, by borrowing money on a limited recourse basis as permitted by super law, but without all requisite powers in the deed (such as to borrow, to grant a mortgage, to appoint a custodian).

Also, current deeds reflect the common requirements of third parties over time, such as banks, who make requests regarding the existence and form of conflict of interest clauses, or investment powers for an increasing range of market-traded financial products (in the nature of derivatives, swaps and futures).

Updating the trust deed to reflect changes to super law and best practice

If your fund has an old deed, it may not include the changes summarised below. Some of those changes reflect developments in best practice. Others reflect changes in the law.

Although none of these changes specifically require you to update the deed, they make it prudent for you to consider the implications of these changes for the SMSF's trustee(s) and member(s).

The changes are:

• Product Disclosure Statement updated each financial year

  The changes outline caps and thresholds applicable to each new financial year as well as any new tax rates on superannuation contributions.

• Cascading death benefits and recent SMSF developments

  Members can elect how any death benefit will be distributed if a beneficiary predeceases them. The deed also reflects a number of recent developments in the industry — in relation to commuting pensions, SMSF investment strategies and how the Tasmanian SRO assesses duty on trust deeds.

• Changes to the law about minor members

  In March 2012, the law changed to allow an SMSF with a corporate trustee and members under 18.

• Changes to SMSF borrowing law — changes include "instalment warrant borrowing" is now known as "limited recourse borrowing"

  In July 2010, a number of changes were made to the law about SMSF borrowing.

• Changes to meet bank requirements

  New execution clauses in the Deed to meet the requirements of the banks.

• Deed allows Death Benefit Agreements

  Members can use binding Death Benefit Agreements that do not lapse after three years — the agreements bind the trustees until the member revokes or changes the Agreement.

• SMSFs borrowing to acquire assets

  Deed specifically mentions SMSF limited recourse borrowing as allowed by law – again, this will help trustees who apply for a loan to acquire assets for their SMSF.

• "Better Super" major changes

  "Better Super" changes for the major legal reform of SMSFs implemented on 1 July 2007 and 20 September 2007.

• Obsolete pensions removed

  Specific pension payment clauses removed as the pension types are now obsolete.

What to do next

As always, these matters are complicated and involve a careful consideration of your SMSF's circumstances. You should seek legal advice on your SMSF's Deed.

If you have more than 10 SMSFs to update, Cleardocs is happy to assist. Simply send us details of all the SMSF funds that need to be updated and we can prepare the orders for you.

We'll send you the documents as soon as possible after receiving your instructions.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of SMSF topics.

Order Cleardocs SMSF packages

• Update an SMSF deed
• Set up an SMSF
• SMSF set up + register corporate trustee
• Set up an SMSF pension
• Create an SMSF Investment Strategy
• Arrange SMSF borrowing documents:
• for when the lender is a bank
• for when the lender is a related party
• SMSF Death Benefit Nomination — binding or non binding
• SMSF Death Benefit Agreement — binding and permanent
• SMSF Minutes & Resolutions Package