Why you can’t underestimate the importance of an SMSF deed

January 22, 2024
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An SMSF deed is the rulebook for the fund. That’s why it’s critical to make sure your client’s deed covers everything it needs to and leaves nothing open to interpretation.

Even though super legislation and regulators dictate to a large degree what trustees can and can’t do with their SMSF, the deed sets the specific provisions for the set up and maintenance of the fund. It covers what asset the trustees can invest in, contribution types the fund may accept, the benefits members may receive, the powers of the trustees (including discretionary powers), and how trustees are appointed, replaced and removed. The more comprehensive the deed, the easier it makes it for trustees to maximise the benefits of having an SMSF.

David Morgan, founding Director of DGF Morgan & Associates, has over 40 years’ experience in drafting deeds and other legal documents. He says how an SMSF deed is drafted can have a significant bearing on any disputes that may arise between members or trustees – especially regarding estate planning.

“We live in a litigious world where competing interests from additional family members and larger account balances have increased the risk of disputes, particularly in relation to deceased members’ benefits,” David said. “Having an up-to-date deed with a clear and unambiguous estate planning provisions means members have the flexibility to direct their death benefit payments as they wish, instead of having the outcome potentially decided by a court or someone who has taken control of the fund.”

The risk of insufficient estate planning provisions

David highlights a case where a woman took advantage of her elderly mother appointing her as co-trustee of her SMSF, to the detriment of her sibling. The deed didn’t contain prescriptive estate planning provisions.

“Both children were executors of the will, so you would think that might be enough,” he said. “But after her mother’s death, and before probate was granted, the daughter appointed her husband as co-trustee. The two of them then took control of the fund, along with the power to exercise discretion concerning the payment of death benefits. That gave them the ability to pay the daughter the entirety of the death benefits and exclude the brother completely.”

Key estate planning provisions

While all provisions of a SMSF Deed may be important, David highlights two specific areas where advisers should pay close attention.

“Firstly, update the deed regularly given the number of legislative changes and other rulings by the ATO. That will maximise the effectiveness of the fund and minimise the risk of breaches. Secondly, make sure that estate planning provisions are understood and comply with those provisions. The provisions, and what follows from them, might be more or less likely to lead to disputes or litigation after the member’s death.”

David advises that all SMSF deeds should contain the following estate planning provisions:

  • Priority of death benefit payments
  • Ability to commence reversionary pensions
  • Ability to appoint, remove or replace a reversionary beneficiary without the need to reset the pension
  • Binding death benefit nominations that don’t automatically lapse and don’t have to be in a specific format to be binding
  • Retention of pensions and current death benefit instruments
  • Provisions regarding the use of enduring powers of attorney

Whenever you update your client’s deed, David recommends reviewing any existing binding death benefit nomination at the same time. That way, you’ll know the nomination is consistent with the deed. It’s also an excellent opportunity for your client to review who they want the money to go to when they die.

NowInfinity SMSF Deed enhancements

One of the best ways to ensure your clients have an up-to-date and comprehensive SMSF deed is by using a legal deed template like the one provided by NowInfinity. In the last 12 months, 28% of all SMSFs established in Australia used the NowInfinity deed.

The NowInfinity team recently collaborated with our clients, industry experts, and David and his team at DGF Morgan & Associates to undertake a comprehensive review of the existing deed to determine whether there were any structural or other changes that could be made to benefit the broader client base and capture valuable customer insights.

As a result of this review, the team enhanced the deed to expand its provisions and powers of investments. While the deed’s structure is largely unchanged from the previous version, it now has more flexibility and provides better procedural guidance to make advisers’ interactions with their clients much easier.

All SMSF deeds of establishment and deeds of variation produced on the NowInfinity platform going forward will feature the new deed. If you’re using the previous version of the deed with your SMSF clients, we recommend upgrading them to the new deed via the NowInfinity deed of variation.

Please get in touch with the Class team if you have any questions about the new deed, or if you need assistance upgrading your clients.

You can download a complete list of the NowInfinity SMSF Trust Deed features here.

The information contained in this document is provided by Class Pty Ltd ABN 70 116 8023 058 (Class), which is a subsidiary of HUB24 Limited ( HUB24) and is current as at the date of publication. It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. This information is general in nature and may omit detail that could be significant to your particular circumstances. Accordingly, before acting on any of this information, the viewer should consider the appropriateness of the information having regard to their or their clients’ objectives, financial situation and needs. This information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. The information given in this document is in summary form and does not purport to be complete. While reasonable care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation and circumstances can change from time to time. Accordingly, neither Class, nor HUB24 nor any of their related bodies corporate make any representations or warranties as to the completeness or accuracy of the information in this document and none of these entities is liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions.

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