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Self Managed Super Fund (SMSF) Article
Super fund benefit a question of trust

By Tony Negline.

This article may be out of date.

14th May 2008

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Superannuation funds are trusts.  In very general terms a trust will exist when assets are held by a person or company for someone's benefit.  The person or company will be the super fund trustee and the members and their relatives are the beneficiaries.

The key document which guides how 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 annexed to the back of the deed.   These rules are often called the fund's governing rules and are typically for Self Managed Super Funds these will run to 40 or 50 pages.

Daniel Butler who works for the Melbourne based law firm, DBA Butler, has pointed out that typically the super laws do not empower trustee to do anything.  Instead these laws often say what a trustee cannot do.  The bottom line is that a trustee is not permitted to act without specific provisions in a fund's governing rules unless specific legislation allows it.  Therefore a good quality trust deed is essential so a trustee knows what to do.

The principal legislation that governs most superannuation funds says that if a trustee decided to operate their fund in accordance with that legislation (and a trustee must do this if they want to get the super tax concessions), the terms of the legislation will automatically apply regardless of anything in the fund's governing rules.  If the trustee keeps a keen eye on the super laws and the changes that are made to them throughout a year at least a trustee will know what they can't do!

From time to time we have heard it said that there is no need for the 40 or 50 pages of rules attached to a fund's trust deed.  This line of argument says that a trustee could get away with its fund's deed saying that the trustee will simply follow whatever the superannuation legislation says at any point in time.  This might be a cheap solution but it isn't practical.

So what are some of the issues which trustees should check to see what their fund's governing rules allow?

This is not an exhaustive list.  We will have to leave to another time why these questions and their answers are important.  Another issue for later is how often a small super fund trust deed should be updated to allow for legislative change.

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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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