The Trust Deed plays a paramount role within self-managed superannuation funds (SMSFs), serving as the fundamental document that delineates the regulations governing your fund’s operations.
The landscape of the superannuation industry, including superannuation legislation, has undergone substantial transformation over the years. In light of these dynamic developments, it becomes imperative to maintain an up-to-date SMSF trust deed. Doing so not only safeguards your interests but also enables you to optimise the potential benefits of owning a self-managed superannuation fund!
Read more about upgrading your SMSF deed below.
What is the SMSF trust deed?
An SMSF trust deed is a legally binding document that outlines the rules and regulations governing the establishment, operation, and management of a self-managed super fund (SMSF) in Australia. It specifies the fund’s purpose, membership details, investment strategies, and compliance requirements, providing the foundational framework for how the SMSF can be managed and invested.
Why do I need to update my self-managed superannuation fund trust deed?
Given the continuous evolution of superannuation regulations, it is crucial for your SMSF to possess a resilient, adaptable, and high-quality trust deed that undergoes regular review. These changes encompass both enhancements in best practices and modifications in legal requirements.
The fund’s governing rules, outlined in its deed, determine what trustees are permitted to do, even if the law allows certain actions. Many older trust deeds may be too restrictive and haven’t adapted well to changing superannuation laws, potentially causing trustees to inadvertently act on outdated powers or lack the necessary provisions for certain actions. Acting without proper authority from the Trust Deed can lead to audit breaches, ATO investigations, sanctions, and the loss of tax benefits.
To access flexible superannuation payments
The substantial pension rule changes have rendered many older SMSF deeds rigid in their pension payment provisions. These deeds lack the necessary powers to enable SMSF trustees to pay modern pension types in compliance with current superannuation laws, including situations where members cannot initiate Allocated Pensions or Market Linked Pensions.
A flexible trust deed, on the other hand, grants the freedom to disburse all legally permissible forms of pensions without limitations. Similarly, outdated deeds might not permit the payment of reversionary beneficiary pensions upon a member’s death, which entails continuing the member’s existing pension to their spouse or child.
Most updated deeds, however, enable the initiation of automatic reversionary pensions. Moreover, since the 2017 reforms, starting new and additional pensions has become more challenging for members due to the transfer balance cap provisions.
Facilitate a transition-to-retirement strategy
In the same vein, current superannuation legislation permits ‘Transition to Retirement Income Streams’ (TTRs) to start when its SMSF members reach their preservation age (from age 59), allowing access to up to 10% of the balance annually. However, older SMSF trust deeds may restrict pensions to retirement or age 65.
If the fund’s rules don’t expressly allow TTRs, paying them could breach the trust deed.
Older trust deeds may lack provisions for various operational mechanisms. A newer deed may incorporate features into their SMSF’s governing rules that their existing deed lacks, including:
- – Investment segregation of superannuation benefits.
- – Contribution splitting and refund of contributions.
- – Pension rollbacks.
- – Dispute resolution.
- – Death benefit payments, including a binding death benefit nomination.
- – Borrowing to invest, such as in direct property.
Borrowing to invest in self-managed superannuation funds. Does your fund’s deed allow it?
When an SMSF wishes to finance property investments (known as a limited recourse borrowing arrangement or an LRBA), the trust deed must explicitly allow for this. LRBA provisions should be included in the trust deed in compliance with superannuation and borrowing regulations.
If you’ve updated your deed and are looking at your SMSF borrowing options, contact the experts in SMSF loans — SMSF Loan Experts!
FAQs about updating an SMSF trust deed
Who can update an SMSF trust deed?
An SMSF’s deed can typically be updated or amended by the trustee(s) of the SMSF, provided that the fund’s trust deed itself allows for such amendments. However, any amendments made must be in accordance with the law and the fund’s governing rules. It’s important to consult with legal and financial professionals experienced in SMSFs to ensure that any changes to the trust deed comply with regulatory requirements and do not jeopardise the fund’s compliance status. Additionally, changes to the smsf’s trust deed may require the consent of all members of the SMSF, depending on the specific provisions outlined in the existing trust deed.
What is a binding death benefit nomination?
A Binding Death Benefit Nomination (BDBN) is a legally binding document used in Australian superannuation funds, including SMSFs. It allows members to specify who should receive their superannuation benefits upon their death and in what proportions. Binding death benefit nominations may provide control and clarity over the distribution of superannuation assets after the member’s death.