Pay close attention to these two key areas.
By Penny Pryor
The trust deed for a self-managed superannuation fund (SMSF) is arguably the fund’s most important document. But it isn’t static and you should never “set and forget” it.
Depending on how complex or simple the SMSF is, how often you need to update or change the trust deed may vary but you will always need to be aware of relevant legislation that could impact your fund and, therefore, its deed.
There is no legal requirement to update your deed every year, or every other year, or every five years, but it is in your interest to do so, particularly if legislation changes allow you to do more within your fund.
“There is no compulsion [to] change your deed. In the majority of cases, it’s still a good idea to do it to give you flexibility,” says Peter Burgess, head of policy and technical at AMP SMSF.
Louise Biti, technical expert and founder of financial planning firm Strategy Steps, says it’s more about the opportunities you are allowed to pursue with your SMSF. While a change in the law through the Superannuation Industry Supervision (SIS) Act will automatically override your trust deed if the law now says something is illegal, other opportunities may not flow through.
Biti cites the example of LRBAs (Limited Recourse Borrowing Arrangements), which are now permitted under law but can’t be entered into unless your trust deed specifically provides for them.
Make sure your trust deed hasn't passed its use-by date.
Opinion on the frequency with which you should update your trust deed is varied.
SMSF technical consultant and Switzer Super Report expert Tony Negline says, “You should consider updating your deed at least annually and, in most years, at least twice and if necessary, three times per year.”
But Burgess suggests it may not be necessary to do it that often—you just need to have an understanding of what’s happening in your fund. If you have a very simple fund that only invests in say, direct equities, then you can probably get away with a straightforward off-the-shelf trust deed. Such a trust deed would not need much alteration if the fund remains in simple investments and is not used for complex estate-planning strategies.
If the trust deed is customised from the start, however, it probably needs more frequent monitoring and amending.
The two key areas that may prompt updates are changes to legislation or changes in the circumstances of the fund.
1) Changes in legislation
Legislation changes often, and legislation around superannuation and SMSF law is no different. According to Negline there were more than 100 changes in super and tax law in 2012 that could relate to SMSFs.
Of those 100 changes, Graeme Colley, director technical and professional standards at the SMSF Professional Association of Australia (SPAA), says that trustees need to take particular notice of the following:
• Changes that now require them to report asset value at market value (there may be trust deeds that specified how assets were reported and these need to change)
• If they are using binding death nominations in estate planning (trust deeds need to allow for this)
• How auditors are appointed in the trust deed (SMSF auditors now need to be registered with ASIC)
A good adviser and/or administration platform will keep you updated with relevant legislation changes, and an even better one will help you determine if your SMSF’s trust deed needs to be amended as a result. Some firms offer a trust deed updating service.
2) Fund changes and new circumstances
The other time you should check that your trust deed is up-to-date is when there are material changes within the fund. For example, when a member moves from accumulation to pension phase, a new member joins the fund or there are other major life events.
“Certainly, moving into the pension phase and making sure the deed can allow for an account-based pension [is important],” Burgess says.
If you’re reviewing your estate planning, it’s also a good idea to check your trust deed and amend it if necessary. For example, many people have testamentary trusts, with the intention that superannuation funds will be paid into the trust.
However, even if a binding death nomination has been made, if the trust deed doesn’t allow them it could make it difficult for the SMSF funds to be released or allocated as the deceased originally planned.
If you are looking at investing in a new kind of investment, then also check the trust deed.
“Every time a new opportunity arises or you are considering implementing a new strategy, it’s always worthwhile going back to make sure it’s in accordance with the trust deed,” Biti says.
There may not be a one-size-fits-all answer to the question, “How often should I update my trust deed?” It will always depend on the fund. But SMSF trustees do need to understand what’s in the document so they know how they need to respond to relevant legislation changes.
Making sure your adviser, lawyer or administration platform keeps you updated on relevant legislation changes is also important, and before you make any big changes to the fund, it would be wise to check the trust deed.