Bad Deeds: Is your SMSF at risk?
Your SMSF’s trust deed is its rulebook. If the deed does not allow or recognise something then the trustees can’t do it. Despite this, a lot of trustees are unaware of what their trust deed says – it was just something that was required when the fund was established. The problem with any document is that unless you amend it, it is only current for the circumstances that existed at that time. However, the law changes regularly and so do individual circumstances.
This month, we shortcut the review process and highlight the key SMSF trust deed problem areas.
Trust deed does not allow the types of payments being made
A common audit issue is SMSFs paying pensions and other payments to members that are not allowed by the trust deed. The assumption is that because the superannuation laws allow that type of payment then it must be ok.
But, if your deed does not allow the types of payments your fund is making then you’re breaching your deed. Check the deed detail well before you anticipate the fund needing to make payments. This is particularly important for deeds created before 1 July 2007 when the superannuation laws on pension payments changed significantly.
Trust deed does not recognise life changes and estate planning needs
There are several aspects of a SMSF deed that have a direct impact if you die or your circumstances change:
Does your deed allow you to nominate who will receive your super if you die? Some deeds don’t allow for binding death nominations. In some cases the remaining trustees decide who gets your super.
If you have death nominations in place, is the wording consistent with the requirements of the trust deed.
Who has the power to add or remove trustees? There are a lot of court cases around this with kids excluded from a parent’s super by a new spouse or vice versa.
When does someone become or stop being a member? Some deeds will automatically remove members with a nil balance.
Flexibility and control
Does your deed allow the use of reserves or other strategies? Be aware that some deeds don’t allow for effective tax planning strategies!