The importance of having an updated trust deed

An SMSF with an up-to-date trust deed is an ongoing responsibility, especially with the superannuation rules continually changing. The possible change to increase the maximum number of SMSF members and the dispensing of the work test for anyone under 67 years of age are just two pieces of legislation that come to mind.

It can also be important to ensure a fund’s trust deed is up to date in light of new and emerging types of investments. If the trust deed does not provide an express power to permit unusual investments, then the trustees may be restricted in the investment decisions they can make.

But it’s not only legislative and investment changes that trustees need to keep an eye on – the courts and tribunals are dotted with endless cases where there may be a poorly drafted or ambiguous deed provision, or an incorrectly executed deed amendment, which has led to the member or trustee taking the wrong route.

Previous deed amendments

A previous deed amendment which has not been done correctly could mean all deed upgrades done thereafter are invalid. This could include any binding death benefit nominations and other trustee or member actions, which rely on the upgraded deed. It could also mean the current trustees of the fund may have been incorrectly appointed, and death benefits could end up in the wrong hands despite the known intentions of a deceased member.

When the trust deed for an SMSF is drafted or amended the law requires that it must be done by a qualified lawyer who will undertake an examination of the documents to ensure they are legal. The lawyer should check to ensure the amendment is permitted and has been done in accordance with the variation power in the deed. They should also trace the changes to the fund rules back to the original deed that established the fund, or any replacement, and make sure that every subsequent amendment is valid.

If the 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. Also, in the event the amendment or trust deed has been made by an unqualified person and is invalid or deficient, any compensation that is sought may be limited if that person’s professional liability insurance does not cover the change.

Poorly drafted deeds

A poorly or incorrectly drafted deed may result in expensive litigation where the amendments are not being varied by a qualified lawyer. It is therefore necessary to use the services of a qualified legal practitioner to draft an SMSF’s trust deeds, amendments thereto, and any other legal documents. These should be written and checked by a lawyer to make sure the document is authorised by the original deed and each subsequent amendment.

Having a trust deed reviewed regularly to incorporate the latest changes to the legislation and interpretations by the courts can provide can provide trustees, members and other beneficiaries with peace of mind that the deed is robust enough to withstand any legal challenges or arbitration, especially when a trustee or member may not be present to make or influence decisions.

An updated trust deed is a great way of ensuring the fund’s trust deed plus any amendments are valid and that the deed incorporates all the latest legislative changes and supports the latest SMSF strategies.