A self managed superannuation fund (SMSF) is governed by a trust deed. The trust deed sets out the rules of the fund. Whilst the trust deed can impose more onerous regulations for the trustees to follow, it is not permitted to contain clauses which require the trustee to breach the SIS Act.
The trust deed can be amended at virtually any time, but the trustee must follow the guidelines for amending the deed as set out in the original trust deed of the fund. Further, amendments to the trust deed cannot reduce a member’s entitlements unless it is approved with the written consent of the members or the regulator (which in the case of SMSFs is the ATO).
The governing rules of a superannuation fund are deemed to include certain covenants which cannot be avoided or modified. These covenants (contained in section 52 of SIS) are in addition to any obligations which general trust law may impose on trustees. Examples of some of the covenants that must be included within the funds governing rules/trust deed are as follows:
* to act honestly in all matters affecting the fund
* to act in the best interests of the beneficiaries
* to keep fund assets separate
* to formulate and give effect to an investment strategy
So that brings us to how often a trust deed should be updated. Since the trust deed stipulates the rules of the fund, it is particularly important to examine the trust deed to ensure that any action that you are going to undertake is allowed.
This includes such things as whether or not binding death benefit nominations are allowed, whether certain investments or investment strategies are allowed, whether borrowing is allowed or for example, whether the fund can actually pay a pension income stream.
If as trustees you are intending to undertake any activity with your SMSF, and that activity is not included within the trust deed, then you will need to review and update the trust deed.
The other most frequent cause for a trust deed amendment/update is when legislation changes. For example, when term allocated pensions were introduced some years ago, they were a new form of pension. As such, anyone with an SMSF who wanted to start a term allocated pension needed to have the trust deed amended to allow this type of pension to be paid.
Generally, your SMSF trust deed should be reviewed at least every five years to make sure that it is current and up to date. Many trust deed providers offer an automatic update service for a small annual fee. The idea is that you will automatically be sent a trust deed update whenever legislation changes so that you will always have the most up to date and widely capable governing rules.
There is no particular age that would cause an automatic review of your trust deed. It is much more about ensuring that the governing rules allow the strategy/activity that you are wishing to undertake.
By Jeremy Gillman-Wells, Financial Planner, Bentham Financial Group
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