A self managed superannuation fund (SMSF) is a trust structure used to manage retirement savings on behalf of its members. All SMSFs must abide by trust and superannuation laws, which include compliance with the following:
The primary obligation of a trustee is to act in accordance with the Trust Deed. A Trust Deed sets out how the trustee should operate and manage the Trust.
To ensure the smooth running of a SMSF, the Trust Deed should generally include:
A SMSF Trust Deed essentially provides the operational framework for the SMSF. When considering making any structural changes, it is important to refer to the Trust Deed to ensure the desired changes are permitted. For example, a Trust Deed may have prescriptive rules in relation to the appointment of additional members. It may require that a potential member complete an application in a specific form, sign a product disclosure statement or provide a written statement that they agree to be bound by the rules of the SMSF. If the new members do not comply with the Trust Deed requirements, then their membership may be void.
There are generally specific requirements for winding up a SMSF. An SMSF Trust Deed may require written notification be given to members or that members must unanimously agree to wind up the SMSF. It may also specify that a SMSF must automatically be wound up in certain circumstances. Another important area is Trust Deed amendments. Some Trust Deeds are very specific in relation to when and how they can be amended. Some Trust Deeds may require an employer sponsor to approve the amendment. Failure to obtain this approval may result in any amendments being void.
In September 2007, the superannuation legislation was amended to specifically allow SMSFs to borrow money to acquire an asset. If trustees are considering a borrowing arrangement in their SMSF, they should review the Trust Deed to ensure this is permitted, particularly if the Trust Deed is older than 2007. Specific lenders may also require additional powers and/or provisions to meet their lending requirements.
The rules in relation to pensions have changed substantially from 1 July 2007. It is important that trustees check the SMSFs Trust Deed to ensure it allows for the relevant pension to be paid (e.g. Some older Trust Deeds do not provide for the payment of Account Based Pensions which only came into effect from 1 July 2007). It is also important to check the deed has provisions for the commutation of pensions and the ability to treat pension payments as lump sums should the need arise.
Where benefits are to be paid out of a SMSF, it is important the Trust Deed is checked to ensure the benefit payment is permitted. It is also important to check the method of payment is permitted, such as via an in-specie transfer of an asset. There may also be specific requirements that a member must have ceased employment or attained a particular age prior to a benefit being able to be paid.
One of the likely scenarios for litigation involving SMSFs is the payment of benefits on death of a member. There have been a number of significant court cases surrounding the payment of death benefits. It is imperative that a Trust Deed is checked prior to a member making a Binding Death Benefit Nomination (BDBN). The Trust Deed should have clear rules as to when a BDBN is binding on the trustee, whether it needs to be in a particular form, whether additional information must be provided to the member making the BDBN and whether the BDBN is to expire after 3 years (which is not a requirement for an SMSF – but industry practice is often to include an expiry clause to ensure members regularly review their situation).
Regular review of a Trust Deed will ensure the SMSF is prepared for any situation, such as paying benefits and entering a limited recourse borrowing arrangement. In practice, it is recommended that a SMSFs Trust Deed be reviewed at least every 3 to 5 years to ensure it remains relevant.
Ensuring you are meeting all government regulations with regard to your SMSF is essential, not only to maximise your retirement fund but also to ensure you avoid any potential tax implications or penalties.
For more information on Trust Deeds, or for any SMSF related enquiry, please feel free to call our office on 1300 726 082 and ask to speak with one of our accountants who will be able to assist.
Get the latest news and insights from The Hopkins Group, as it happens.