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Trust deed health check

Trustees should generally refer to the trust deed to make sure it allows them to take certain actions. This includes the assets it can invest in and how disputes between members are handled.



The trust deed is one of the most important components of a self-managed super fund (SMSF).

An SMSF is a trust, and the deed that underpins it outlines the rules around how the trust works. It sets out the objectives of the fund, the members and how distributions can be made. 

Trustees should generally refer to the trust deed to make sure it allows them to take certain actions. This includes the assets it can invest in and how disputes between members are handled.

As the Australian Taxation Office’s (ATO’s) web site notes, the deed must be prepared by a lawyer, or someone with the qualifications to prepare a trust deed. It must also be signed and dated by every trustee, be properly executed and – this is the most important one – be regularly reviewed and updated.
 
Natasha Ng, Solicitor at Townsends Business and Corporate Lawyers, says as the deed is being set up, trustees must first ensure they check the important details are correct.

This includes the name of the fund, and the name and address of the corporate trustee if that’s relevant. Each member must also check details like their full legal name appears correctly on the deed.

Totally accurate

There are also many other boxes to tick when it comes to ensuring the trust deed complies with superannuation laws.

Apart from not checking details such as the correct spelling of a member’s name and the name of the fund on the deed before signing, another mistake is having the wrong trustee sign the deed.

For instance, the individual trustee may sign the deed when in fact the trustee structure is a company. Another “no-no” is individual trustees witnessing each other’s signatures.

“If the wrong trustee signs an amendment deed, the rules in the amendment deed may not have been validly adopted and a new amendment deed would need to be prepared and signed with the correct trustee signing,” warns Ng.

For a document to be validly executed as a deed, individual trustees’ signatures need to be witnessed by an independent adult, which means individual trustees cannot witness each other’s signatures.  

“If individual trustees witness each other’s signature on an establishment deed, the document is not validly executed as a deed. A third party in the future may ask for documents to be prepared for the trustees to ratify the incorporation of the SMSF rules contained in the establishment deed despite the defective execution of the deed,” she adds.

Ensuring best practice

Ng’s advice to trustees who determine there’s a mistake with their SMSF’s trust deed is to fix the error at the time it is detected.
 
“If an error is picked up such as a discrepancy in the name of the fund or the name of a member across a number of deeds, you should arrange for the error to be corrected at the time it is detected,” she advises.
 
Third parties such as banks typically pick up on these types of discrepancies when reviewing documents to finalise the bank’s loan as part of a limited recourse borrowing arrangement for an SMSF.  

Says Ng; “Generally, these errors are detected close to settlement and if a Deed of Rectification needs to be prepared this may delay the settlement date and result in penalty interest to be paid by the purchaser if they are not in a position to settle by the agreed date.”
 
She also says it’s essential to keep electronically signed copies of documents.
 
“Once any documents are signed and dated scanned copies should be kept for electronic storage.”  

Electronic copies should be kept with the trustees, the fund’s adviser and accountant or the fund administrator.  

“The original signed documents should also be kept in safe storage with the fund’s records.  We sometimes hear from trustees who cannot locate their documents and have to contact former accountants or advisers who previously assisted the SMSF at the relevant time which may be difficult if the accountant or adviser’s firm no longer exists or if the trustee had a falling out with a former adviser,” she adds.

The key message is to ensure the trust deed is set up properly at the time the fund is established and ensure it’s updated on an annual basis. That’s the best way to ensure the fund and its guiding documentation always remains compliant. 
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