Step by step guide to SMSF borrowing
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What description for the custodian's capacity should I use?
If the custody trust itself has a name, then insert, for example:
- if individual trustee "John Smith as trustee of the [## insert name of custody trust]"
- if corporate trustee "John Smith Pty Ltd ACN ## as trustee of the [## insert name of custody trust]"
However, there are two further things to bear in mind:
In land registry forms
Most land registries will not accept any reference to a custodian or trustee capacity. Therefore, the transfer of land should simply be
registered in the custodian's legal name, for example:
- if individual trustee "John Smith"
- if corporate trustee "John Smith Pty Ltd ACN ##"
In share registry forms
Share registries do not accept any reference to a "trust" or "fund". So shares held on trust are generally registered as "John Smith Pty
Ltd ACN ## <John Smith Super Account>" or "John Smith Pty Ltd ACN ## <John Smith Custody Account>".
When should I sign the contract for sale and what details do I use for the contract?
You can read our ClearLaw article about the requirements here.
Can a person or entity be custodian of more than one custody trust for an SMSF?
While you can have more than one custody trust for your SMSF, our lawyers at Maddocks do not recommend one person or entity being custodian
under more than one custody trust. While this is not forbidden by superannuation law, it may lead to confusion and/or a conflict of interest
for the custodian, who will have a separate set of responsibilities in relation to each custody trust.
It may also not be acceptable to the lender. You should check with the lender prior to appointing a person or entity as a custodian of more
than one custody trust.
Do the Cleardocs SMSF Borrowing (bank) documents allow for fixed or variable interest rates?
The Cleardocs SMSF borrowing documents — for when the lender is a bank — are suitable for a loan with a fixed
interest rate or a variable interest rate. The arrangements about the interest rate will be in the loan documents, which the bank provides.
Do the Cleardocs SMSF Borrowing (related party) documents allow for fixed or variable interest rates?
The Cleardocs SMSF borrowing documents — for when the lender is a related party — are suitable for a loan with a fixed interest
rate or a variable interest rate.
If the loan has a variable interest rate, then here's what to do:
You order the normal Cleardocs SMSF Borrowing (related party) document package — when the system asks you "Will the lender
and the borrower be able to vary this interest rate by agreement?", answer "Yes".
The Cleardocs system will insert the applicable interest rate at the date the documents are ordered as a fixed rate. Your document package
will include an Agreement to vary Interest Rate.
As the interest rate changes, the parties can separately document the change in writing using the Agreement to vary Interest Rate. The
parties can vary the interest rate as many times as they wish, but they need to separately document each change in writing.
Do the Cleardocs SMSF Borrowing (bank) documents allow for an interest only loan?
The Cleardocs SMSF borrowing documents — for when the lender is a bank — are suitable for an interest only loan. The
arrangements about what is being repaid will be in the loan documents, which the bank provides.
Do the Cleardocs SMSF Borrowing (related party) documents allow for an interest only loan?
Yes, the Cleardocs SMSF borrowing documents — for when the lender is a related party — are suitable for both:
- a loan in which both the interest and the capital will be repaid; and
- a loan with an "interest only" period, that is, a loan with a period during which the borrower is only required to repay interest (and not
For a loan with an "interest only" period, answer "Yes" on the question interface to this question:
"Will there be a period when the borrower is required to pay only interest (and not to repay capital)? That is will the loan be "interest only"
for a certain period?".
You can then select the length of the "interest only" period (which can be up to 5 years but not longer than the loan term) and whether the
capitalise interest payments. The Cleardocs system will tailor your loan documents to reflect the borrowing arrangements.
I want to make changes to signed SMSF borrowing (bank) documents — what do I do?
If you wish to vary a Cleardocs Declaration of Custody Trust (Custody Trust Deed) that you purchased as part of the Cleardocs SMSF borrowing (bank) document package and the Custody Trust Deed has been executed, you can create a deed of variation of the custody trust through Cleardocs. That document package covers a change in:
- lender; and/or
- any other details in the schedule to the Custody Trust Deed (such as the details of the authorised investment or the loan amount).
If you wish to vary the SMSF borrowing (bank) documents for any other reason than a change in lender or change in details of the authorised investment (for example, to address the Custody Trust Deed being incorrectly executed or dated), you must seek your own legal advice about this. You are welcome to use our lawyers at Maddocks for obtaining this advice — they will charge for their time as this is not part of the free legal helpline we arrange through Maddocks.
Why should you speak to your lender before you incorporate the Custodian entity?
Although superannuation law does not specify the type of trust that must be used to hold the asset being acquired (custodian entity), different lenders may have their own requirements with respect to the directors and/or shareholders of a custodian entity.
To ensure that you get it right the first time, you should ask your lender about their specific requirements.
What happens if I die and I do not have a Binding Death Benefit Nomination or Death Benefit Agreement in place for my fund and there is a surviving member of the fund?
If you die and you do not have a binding Death Benefit Nomination or Death Benefit Agreement in place, then the trustee of the fund, most often the surviving member of your fund either as a trustee in their personal capacity or as the sole remaining director of a corporate trustee, will determine how your death benefit entitlement is dealt with.
That trustee of the fund has to notify certain persons regarding the death benefit entitlement. Please refer to our FALQ 'If I am a surviving trustee of a fund which uses the Cleardocs SMSF trust deed product and a member of the fund has died, do I need to notify anyone of the deceased member's entitlement?'
For example, that trustee could decide that your member benefit entitlement is paid 100% to themselves (i.e. the survivor). Or, he or she could decide to pay it to your legal personal representative, being to your estate or to any other dependants. This can be a complicated process if you are dealing with a second marriage or a blended family.
To help avoid these complexities, you can choose that your legal personal representative, being the executor of your will or administrator of your estate, can step into your shoes as replacement trustee/director so that person can make the decision together with the surviving trustee. This would have to be written into your deed.
However, the best way to ensure that your wishes regarding your death benefit entitlement are implemented is to have a Binding Death Benefit Nomination or Death Benefit Agreement in place!
If I am a surviving trustee of a fund which uses the Cleardocs SMSF trust deed product and a member of the fund has died, do I need to notify anyone of the deceased member's entitlement?
Yes, if there is no valid binding death benefit nomination or death benefit agreement in place at the time of the deceased member's death..
You must give written notice that a benefit is payable to the following persons:
- a nominated beneficiary;
- a reversionary beneficiary;
- the legal personal representatives of the member;
- known dependants of the member; and
- any other person that you reasonably believe may have an entitlement or interest in the benefit.
The notice must include how and by what time the person or persons may make a claim for the benefit and following this time you must notify the person or persons you previously notified about the benefit to enable them to object to payment to the person or persons.