The devil is in the details: why getting your SMSF paperwork right matters

Superannuation, like many things in life, is about making sure the right amount is paid to the right person at the right time. You wouldn’t want it any other way, would you?

As we enter a new year and reflect on some of the issues of the past anyone with a self-managed superannuation fund needs to make sure that the fund’s documents are completed correctly and retained. This includes making sure any document does what you think it should and, if required, is witnessed by someone who is not party to it. But it really doesn’t matter what type of fund you have, whether it’s an SMSF, retail, industry or government fund they all require accurate and complete documents from you. Incorrectly completed or executed documents may be treated as invalid and a person you never intended may get your super after your death.

Executing a Fund’s Trust Deed

As a starting point let’s look at the fund’s trust deed and governing rules which are its centrepiece and include most, if not all, the rules of how the fund is to operate. As a trustee of an SMSF you need to become familiar with the provisions of the trust deed or seek advice on what is required when certain things occur with the fund.

A valid trust deed is required to be executed by the parties to it - usually the person who establishes the trust (the settlor) and the corporate or individual trustees. The trust deed will be signed (executed) by the parties to the deed and independently witnessed and dated. The main issues we see with trust deeds is that the trustee has not signed the deed or signatures have not been witnessed. It is usually necessary to seek legal advice on how to correct the position which may require a deed of correction to recognise the validity of the trust deed from the time it was intended to operate. Getting it right in the first place would have saved the additional costs, time involved and correcting the issue with yet another legal document.

Appointing, replacing or dismissing trustees

The appointment, replacement or dismissal of a trustee will usually be covered by the fund’s trust deed. We find that trustees who have a limited understanding of the trust deed will go ahead and replace the trustee without consulting the trust deed. In many trust deeds the appointment, dismissal or replacement of a trustee may require the consent of the members. This can be done by a member resolution; however, we regularly see that the trustee makes the decision and if the matter is contested you may find decisions since the invalid appointment or dismissal have not been made correctly.

Some trust deeds require that before a person becomes a fund member they need to complete membership forms. Often the member fails to complete the form and there may be problems under the trust deed if issues arise about the member being a trustee of the fund.

Death benefit nominations

Death benefit nominations are an ongoing issue with the courts and tribunals reviewing many nominations that have not been correctly signed, witnessed or require the distribution of a member’s benefit ‘to their estate’ for example. Under the legislation a person is able to have their superannuation paid to a dependant on their death including their spouse or child irrespective of the level of dependency. It is also possible to have a death benefit paid to a person’s personal legal representative for distribution as part of their estate.

Any direction in the death benefit nomination needs to clearly direct the trustee to pay benefits as directed. There are a number of court cases where there was no clear direction and the trustee was required to fall back on the other provisions of the deed to pay the death benefit.

Other documents to get right

In addition to making sure the execution of the fund’s trust deed and related documents are correct there’s a whole range of other documents that members and trustees need to get right. Take for example, the fund’s investments, accounts, tax returns, election to claim personal tax deductions or getting your SMSF to receive your employer’s superannuation guarantee contributions. Getting the documents right can make a great difference.

The number of signatories to a document can be important as well. This can depend on whether the trustee consists of individuals or is a company. Each Australian state has its own requirements.

Corporate Trustee

If the trustee is a company a document can be executed as it determines, including giving someone else the authority to sign the document on behalf of the company. Execution of the document will usually be supported by the company’s constitution or as a resolution of the company’s board.

The Corporations Act legislation has provisions which allow organisations dealing with companies to rely on certain assumptions that the document is executed correctly. It is assumed that a document has been executed correctly:

• Without a company seal where it is signed by:
  • Two company directors,
  • A company director and company secretary,
  • A sole director of the company who is also the company secretary.
    
• With a company seal being affixed to the document in the presence of the following persons who have signed the document as witnesses:
  • Two company directors,
  • A director and a company secretary,
  • A sole director of the company who is also the company secretary.
    

If a company has a sole director who is not a company secretary and another person is given authority to act on the company’s behalf a copy of the authority, such as a resolution, could be provided.

Individual trustee

Each State has its own rules for individuals to sign legal documents but as a rule a witness to a trustee’s signature should be:

• At least 18 years old,
• Know the person whose signature they are witnessing,
• Be satisfied the person is who they say they are,
• Witnessing the signature and not a party to the document.
  

Electronic signatures

If you think the rules about signatures for individuals or directors are involved, then including an electronic signature on a document can be even more complicated. Despite the huge increase in the electronic transmission of documents, placing an electronic signature on some documents is not possible. The reason is that if it is a formal legal document then a handwritten signature is necessary where it requires witnessing.

One thing’s for certain, if you’re not sure then get advice on what’s required under the fund’s trust deed as it has an essential role to play. When it comes to executing a document for or on behalf of the fund know what’s required if the fund has a corporate or individual trustee. Otherwise you could end up with a totally unacceptable result.