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Trust deeds are not set and forget

Trust deeds are not set and forget

See why it is important to keep your trust deed up to date.

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.

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Pty Ltd ABN 65 003 900 169 AFSL 231139 a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 (the Bank). While potential SMSF investments have been illustrated within this content they do not represent a comprehensive suite of possible investment products and services within the guidelines pursuant to the SIS Act 1993 with ATO oversight.