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Self Managed Super Fund (SMSF) Article
Keeping your small super fund trust deed up to speed

By Tony Negline.

This article may be out of date.

16th July 2008

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The key document that guides how Self Managed Super Fund trustees run their fund is called a trust deed.

Typically this document might only be one or two pages long.  The provisions of this deed nearly always specify that the trustee is required to manage the trust according to the rules attached to the deed.   These rules are often called the fund's governing rules and are typically for a Self Managed Super Fund will run to 40 or 50 pages.

As the super, tax and other relevant laws are being amended all the time small super fund trustees will have to regularly update their trust deed to reflect the latest laws.

Refreshing a trust deed more often than yearly doesn't seem to make sense because of the huge administrative burden it places on Self Managed Super Fund advisers.  Most advisers will happily tell you about their 10% - 50% of clients who seem to take forever to do the most basic tasks.  And SMSF trust deed amendments are not a basic task!

An annual upgrade should be written so as to catch any new rules that appear during a year and a trust deed supplier should be ready to issue an 'ad hoc' update if their catch-all clause does not cover some amendment.

How should trust deeds be amended?  The legal fraternity provides three ways – the traditional method, the automatic method and the semi-automatic method.

The "traditional method" is best explained by an example.  Suppose the Smith Self Managed Super Fund's trustees rely almost exclusively on their accountant to look after all necessary aspects of running their fund.  Over the years the accountant has intermittently informed the trustees that their trust deed needs to be updated.  Whenever a deed needs to be updated the accountant undertakes to source an appropriate document so the trustees can execute it.

The accountant is happy to do this because his firm wants to 'control' the terms of the trust deeds of all its small super fund clients.  His main motivation is to makes his and his employees work easier because all Self Managed Super Funds will have the same trust deed.

Some accountants actually charge their clients a larger administration fee than the standard charge-out rates if a client, for whatever reason, does not have the same deed as all other Self Managed Super Fund clients in the accounting practice.

With this process the trustee and their advisers control the timing of when trust deed amendments take place.  The danger is that the accountant leaves this update process too long and the trust deed gets hopelessly out-of-date.

This process allows a small super fund trustee to buy a new trust deed from the supplier providing the best quality product at the time of an upgrade.

Another way of upgrading a Self Managed Super Fund trust deed is to consider using an "automatic method" which involves a trustee signing up for a particular type of trust deed.

This type of service can only be effectively run via a website.  If a trustee wishes to use this service then they will have to give the providers of this service the power to amend their fund's trust deed whenever they wish.  Some service providers give the trustee and their advisers a period of time to review deed amendments before they automatically apply to their super fund.

If trustees disagree with a proposed update and do not want it to apply then they immediately fall out of the automatic update system.  At a later date a fund trustee would be able to hop back onto the automatic update process if they were prepared to pay for all the all updates that had been done in the intervening period.

Existing SMSFs can sign up for this automatic update system however they may need to seek legal advice to make sure their fund can participate in the automatic update process.

The benefit of this system is that trustees and their advisers don't have to worry about their trust deed – they know that it will always be current.

Some lawyers argue that deed changes not signed off by the trustees (because the trustee has given another organization authority to make these changes) may not apply.  If trustees do not consider and sign-off each update a court could hold this to be a dereliction of fiduciary duty.  Organizations who run these services say trustees have the right to accept or reject changes.

The Corporations Act says that there must be a disclosure of information whenever there is a material change in a product.  Self Managed Super Funds are exempt from rule if members have access to all relevant information.  Without a member signing off that they were privy to information how would do you prove that they were informed?

Some lawyers have said that they are not 'comfortable' with this automatic update process because they argue that the trustees may never see their deed again.  People who provide this type of product respond by saying that trustees simply need to go to their website to obtain a copy of the deed.

The final approach is the "semi-automatic method".

Again this service only really works via websites.  At set times during a year or as deemed necessary by the document supplier trust deed amendments are made available.  The trustee, or their advisers, are then free to review an amendment and decide whether or not they wish to accept it.  The amendment is then either executed or ignored by the trustee not another organization.

Trust deeds often become lost or misplaced.  This system means that the latest terms of a deed should always be available because unless the relevant website goes down or the business providing the service ceases trading the document should always be available.

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