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Self Managed Super Fund (SMSF) Article
Wording of SMSF trust deed

By Tony Negline.

This article may be out of date.

25th May 2005

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Running your own super fund can be a very rewarding experience.  As trustee of your own super fund you get to decide how the fund invests its money and how the fund will pay out benefits.

But these rewards need to be balanced against the trustee responsibilities and obligations that come from running a fund.  It is true that a trustee can rely on their advisers to assist them in running the fund.

In June 2004 the ATO said in its publication, Role and Responsibilities of Trustees, “the decision to become a trustee of a self managed superannuation fund should not be taken lightly.  As a trustee, you are responsible for ensuring your fund complies with the Superannuation Industry (Supervision) Act 1993 … and other relevant legislative and administrative requirements.”

In reality, a trustee’s job is even bigger than the ATO says it is.

The key to understanding what a trustee has to do is to recognise that a super fund is a trust.  Trusts are very clever instruments which are defined in my dictionary as “an arrangement, developed and enforceable … for the holding and management of property by one party (the trustee) for the benefit of another (the beneficiary) or for some specific purposes … [in a super fund] the trustee has legal title to the property he/she is bound to safeguard or actively to exploit on behalf of another, or others, who have the equitable ot beneficial ownership of the property.”

Trusts began to appear in England hundreds of years ago and since then the duties and powers of trustees have been moulded and adjusted by Court decisions and specific legislation.  This law has given trustees a range of duties.  Some of these duties can be varied, or even deleted, by the specific rules that are laid down by the creators of a trust.

Most super trusts will find these rules in their fund’s trust deed or in legislation and regulation.  The super legislation even says that a fund’s rules can be unwritten however there is an obvious danger of no documentation of trust rules.

When a super fund is created, a trust deed is often created as a matter of course.  Most SMSF trustees will receive a trust deed from the person who helps them set up their fund.  These deeds will need to be updated quite regularly.

One trustee duty, called the “Duty of Loyalty”, says that a trustee must be familiar with their trust’s deed and other governing rules and cannot depart from these rules unless a court has approved otherwise.  It also says that a trustee has to place the interests of beneficiaries ahead of other concerns which might appeal to the personal views of the trustees.

For the vast majority of SMSF trustees reading their trust deed remains an unfinished job.  Almost all other chores seem more appealing than reading and thinking about a thick clump of paper written in complicated legalese.

If you make an effort to read most deeds you will quickly see that there is no logical flow in the document.  Issues that should be grouped together are all over the place.  To solve one problem you have to flick between multiple pages.

Mr Christopher Balmford who heads up the company Cleardocs, an internet based supplier of legal documents such as SMSF trust deeds, believes that this style of complex legal document is unacceptable and unnecessary.  He believes that people should find all legal documents, including SMSF trust deeds, easy to locate the information needed, easy to read, understandable and practically useful.

“If trustees can understand their obligations, then they are much more likely to comply,” said Balmford.

Dan Butler of DBA Lawyers, also a supplier of SMSF trust deeds, believes that the super laws are very large and complex and unfortunately some issues cannot be simplified.

He provides the example of a trust deed giving a trustee the power to lend money.  He says that by itself this power looks fine but it needs to be counter-balanced against court decisions and state based Trustee Acts which considerably restrict this power which are hardly ever covered in the trust deeds.

Mr Balmford believes that trust deeds should “use examples to show the sorts of payments or purchases that are acceptable, or how calculations work”.  Grant Abbott of The Strategist Group, another supplier of trust deeds, agrees with Balmford because he believes it makes the trust deed more accessible to its users and would help the investor to make a confident and informed decision.

Mr Butler says that if a trust deed is well written it doesn’t need examples.  “In some situations I have seen examples in trust deeds which conflict with the deed’s actual provisions,” said Butler.  He believes that if examples are going to be provided then these should be in a fund’s Product Disclosure Statement.

Clearly the SMSF trust deed is a very serious issue and it is important that trustees make the effort to read this document and make sure they follow it.

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This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.

 
 
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