Servicing and Tuning of SMSF Deeds

Just like your car needs servicing, your clients’ self-managed superannuation fund (SMSF) trust deeds may be in dire need of a service. SMSF trust deeds are like the “rule book” for the SMSF. They are the document that stipulates what the trustees of the fund can and cannot do.

If a SMSF deed is not up to date, then your client may be missing out on benefits that they would otherwise be entitled to if the deed was up to date. They may not realise this until the actual circumstance happens – and then it could be too late! So it is best to “service” (by at least conducting a review) regularly rather than end up being stuck on the side of a road.

There are various reasons why a SMSF deed may require an update. Some considerations include:

1. Does it have all the clauses allowing the SMSF to borrow?
If your client intends for their SMSF to borrow money in the future, then there are certain clauses that will need to be in the deed to allow the transaction to occur. If the deed does not contain the clauses, then the bank (or other lender) will not proceed with a loan.

2. Does it allow for Binding Death Benefit Nominations with back-ups and does it fit with your client’s Will?
A valid binding death benefit nomination gives certainty about who receives superannuation after death. Some deeds do not allow members to make binding death benefit nominations, and some do not specifically allow a back-up appointment (in the event that the initial beneficiary predeceases the member). It is also important for clients to review their estate planning and ensure that they know how the terms of their deed operates with their Will and Enduring Power of Attorney.

3. Does it allow for the latest tax benefits?
If your clients are already taking, or looking at taking a pension from their fund, then it is important to check whether the SMSF deed automatically allows a pension to continue on death. If not, there can be tax consequences.

4. Is it up-to-date with the latest legislation?
SMSF rules have been known to change more often than the weather. So, your clients should check that the SMSF deed is in line with the latest legislation. For example – Is the deed flexible enough to deal with threshold changes – such as the minimum pension amount which changes each year, and does the deed allow the right types of pensions? As a result of law changes, you can only commence account based pension. So, deeds which provide for commencement of other types of pensions (such as market linked and defined benefit) are out of date. Even some deeds that are quite recent may need an update. However, particularly, if the deed is quite old, it will probably need to be updated.

5. Does it allow flexibility with contributions?
If a SMSF deed does not allow members to choose whether expenses paid by them in relation to the fund are treated as contributions or not, then your clients may not have this option.

There are also other reasons that may give rise for a “tyre and oil change” specific to your clients’ situations. To arrange for a SMSF deed to be updated, or if you would like further information, please contact us.