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Self Managed Super Fund (SMSF) Article
SMSF Trust Deed Suppliers
By Tony Negline.
This article may be out of date.
30th May 2007
We all tend to look at the super laws in the wrong way.
Typically when we are thinking about a particular transaction or activity we first try and see what the law allows including looking at the tax consequences and considering what the regulator thinks. If the law doesn’t provide any prohibitions or penalties then most of us will move to implementation. Before proceeding to completing a strategy only a few will firstly check their fund’s trust deed.
The approach is fair enough because the super rules and the regulators are such massive issues that they seem to blanket out all other items.
Ideally however we should firstly check what the trust deed allows before proceeding to look at the law. The fact is that there is no more important document than the trust deed.
Why is the deed so important? The best way to answer this question is indirectly. In many places the super laws will allow a specific activity if the fund’s “governing rules”, or trust deed, allow it. In other words in many places the law makes it clear that it isn’t the principal document that rules a trustee’s activities.
One of the problems with super fund trust deeds is that they need constant updating and upgrading. Depending on what the trustees want to do with their super fund at the very least they need to be thinking about updating their fund’s trust deed every three to five years. Why the need to upgrade so often? This demand doesn’t only come from the legal firms who do quite nicely out of providing off-the-shelf trust deeds. Some of these deed providers argue that you should update your SMSF trust deed annually. There is some merit in this view but for most people it can seem like overkill. The real reason to update a trust deed so regularly is that the law changes so frequently.
Now that the July 2007 super reforms are just about to begin it is a good time to decide if you need to update your trust deed.
How do you determine if the place where you intend to buy your trust deed knows what they are doing? This is a very difficult question to answer because the legal fraternity offer a wide range of SMSF trust deeds for equally wide ranging prices. A deed can cost anywhere from $100 to $1,000. Unfortunately the price often bears no resemblance to the quality of the document. There are good deeds that cost hundreds and bad deeds that about a thousand. There is no such thing as a perfect SMSF trust deed.
Many deed providers seem to have started with a trust deed which was once used to set up super funds for employers. SMSF trust deeds should be specifically drafted for these types of funds because they are very different to larger super funds in almost every respect.
So what questions might help you determine the competency of a super fund trust deed supplier?
- What relevant experience do they have? What assistance can they provide when needed?
- How long has supplying SMSF trust deeds been a core activity?
- How many do they supply each year?
- Do they complete the work in-house or do they outsource or use other suppliers or subcontractors? If they license their deed from a law firm, how long has supplying SMSF trust deeds been that firm’s core activity? Is that law firm known for its expertise in the field of SMSFs?
- Do they supply comprehensive range of relevant disclosure documents? For example Product Disclosure Statements and binding death benefit nomination forms
- How often do they review and upgrade their deeds and when was it last brought up to date?
- Are they fully up to date with the latest super reforms? In another DIY Super column we will be looking at many of the issues a super fund’s trust deed will need to have under the new laws
- Do they provide lawyer sign-off on each deed or is does a master deed only have legal sign-off?
- Do they review the fund’s last deed and do they closely follow its variation power to ensure the deed upgrade is valid?
- Do they review the entire deed history and provide feedback on pertinent issues such as previous imperfections in the document trail?
- What quality control procedures do they have in place to ensure that the documents are accurate and reflect instructions?
- Can they also provide quality documentation for other aspects of SMSFs, including pension documentation, change of trustee, etc?
- Do they have professional indemnity insurance or other protection for you?
- Do they retain copies of documents if ever needed and if so for how long?
- Do they have a database facility to alert their clients when a SMSF deed is next due for upgrade?
This is not an exhaustive list but it is a start. Good luck with providing the best possible deed you can find.
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