By Olivia Long

Self managed superannuation funds (SMSFs) are a form of trust – and every trust must have an executed trust deed. A trust deed is a legal document that sets out the rules for establishing and operating your SMSF; such things as the fund’s objectives, who can be a member and how benefits are paid. The trust deed and super laws together form the fund’s governing rules.

If your fund has a corporate trustee, the fund can pay lump sums or pensions. If your fund has individual trustees, the trust deed needs to state that the fund’s sole purpose is to pay retirement benefits.

As a trust deed is a legal document, you need to have it prepared by a qualified person. There are three ways to do this. One is to engage a specialist lawyer to consider your individual needs and tailor a deed to your personal situation. But this can be costly and possibly unnecessary for the average SMSF.

You can buy a trust deed or deed upgrade online at a competitive fee. But this can be risky as it’s difficult to know which deed provider is appropriate and just how good they are.

The third way is via an SMSF administrator. Most have established a relationship with a legal specialist and can endorse the quality of deed and provide it at a competitive cost.

A trust deed needs to be regularly reviewed and updated. Indeed, an often-asked question is: “How often should a deed be upgraded?”

The conservative approach would be to upgrade it annually to reflect any changes to legislation during that period. At the very least, trust deeds should be upgraded when there are legislative changes to superannuation that are not reflected in the existing deed.

With the introduction of the Simpler Super legislation in 2007, a significant number of deeds were upgraded at that time, but many have not been updated since.

Out-of-date provisions guiding the actions of trustees could have adverse effects on members’ benefits, and, with the recent introduction of administrative fines for SMSF trustees, potential monetary penalties.

For example, one of the provisions not covered in older trust deeds is non-lapsing binding death benefit nominations, meaning that some SMSF members may have inadvertently created three-year lapsing nominations.

The implication of this is that many SMSF members may either have an invalid nomination, or may die without a valid nomination if three years have passed since it was last updated. We often hear of situations where there has been a relationship or marriage break down, where the remaining trustee gains control of the death benefit by default and ignore the wishes of the deceased. Imagine working your entire life and contributing to super only to have it accessed against your wishes when you die due to a technicality.

The role of legal personal representatives (LPRs) of a deceased SMSF member has also changed, with the acknowledgement now that their role in protecting a member’s death benefits may be a moot point due to the time taken to receive probate.

As an LPR cannot be appointed until probate is granted, a time delay of three months or more is common, during which time the remaining trustees could have distributed the death benefits anyway they chose.

Many older deeds use the LPR as a safeguard for a deceased member, but new alternatives, such as a death benefit guardian, better protect the interests of SMSF members. A death benefit guardian is a person appointed during the member’s lifetime who steps in immediately to protect the member’s interests on their death, therefore eliminating the timing issue associated with legal personal representatives.

These are just a few examples of why ensuring your trust deed remains up to date. Certainly we recommend you consider your trust deed and any other superannuation changes annually as part of your overall SMSF review.