In addition to keeping your trust deed safe and secure, it’s important that as legislation and the interpretation of legislation changes, trust deeds change to ensure they keep up to date with requirements and allow your SMSF to be able to remain within the law or take advantage of potential opportunities. Like most things SMSF, keeping your fund’s trust deed up to date is an ongoing responsibility of trustees.
Some examples of changes are the recent proposal to increase the maximum number of SMSF members announced in this year’s Federal Budget and the change several years ago to allow non-recourse lending. It can also be important to ensure your fund’s trust deed is up to date in light of new investments, an example of which would be digital currency. If the trust deed does not provide the express power to invest in these types of assets, an SMSF may not be permitted to do so.
Additionally there is a need to continuously review trust deed wording and provisions to take into account recent court and tribunal rulings to ensure the trust deed functions in the manner intended. Older trust deeds may be poorly drafted or have ambiguous trust deed provisions.
A previous trust deed amendment which has not been done correctly could mean all trust deed upgrades done subsequently are invalid. This could include any binding death benefit nominations and other trustee or member actions which rely on the upgraded trust deed. It could also mean the current trustees of your fund are not who you think they are, and death benefits ending up in the wrong hands despite the known intentions of the deceased member.
All drafting and amendments to SMSF trust deeds must, by law, be completed by a qualified lawyer who will undertake an examination of the documents to ensure they are legal.
A lawyer will check to ensure the amendment is permitted and has been done in accordance with the variation power in the trust deed. They will also trace the changes to the fund rules back to the original trust deed that established the fund or any replacement, and make sure every subsequent amendment is valid.
If the trust deed has not been amended correctly, it can mean a provision in the trust deed (such as those covering a binding death benefit nomination or trustee replacement on a member’s death) may not be valid and could be subject to challenge. There have been numerous court cases where this has occurred and the outcomes have not been in line with the trustee’s intentions.
Cases involving poorly or incorrectly drafted trust deeds may result in expensive litigation. Always use the services of qualified legal practitioners who specialise in SMSF trust deeds and amendments, as well as other legal documents. Having a trust deed reviewed regularly so it incorporates the latest changes to legislation and interpretations by the courts can provide you with peace of mind that the trust deed is robust enough to withstand challenge, especially if you are not around to make decisions.
An upgrade is a great way of ensuring the fund’s trust deed (plus any amendments) are valid and the trust deed incorporates all the latest legislative changes and supports the latest SMSF strategies.