Ten good reasons to use my documents for your Australian SMSF
- You should buy direct from a lawyer or agent of the lawyer
- You need to check the fine print
- I have a direct duty to you
- The documents are modern and up to date
- The step-by-step guides are very comprehensive
- The establishment pack contains a lot more than the trust deed
- The trust deed for a new fund
- The company constitution (in the case of a corporate trustee)
- Custodian trust documents
- The documents are reasonably priced
- After sale support
You should buy direct from a lawyer or agent of the lawyer
It is crucial to your SMSF that it qualifies and continues to qualify for concessional tax treatment. To achieve this, the documentation needs to be properly drafted. This is legal work. In Australia it is unlawful for non-lawyers to engage in legal work. This is why you will find that all the deeds, corporate documents and much of the guidance about SMSFs available online will be prepared by lawyers.
But the problem is this. When lawyers carry out legal work they are covered by professional indemnity insurance but only in respect of legal work they carry out for clients. When you purchase legally drafted documents directly from a lawyer or an agent of the lawyer you will become a client of that lawyer. Then you will have the security of knowing that you are covered by the lawyer's professional insurance if the documents contain errors or the legal advice is wrong, and you lose financially as a result of this. So when your fund is supplied with a deed you need to check that you will be the client of the lawyer who has produced the documents - and that it is not a mere subsale to you.
You need to check the fine print when buying
I would strongly suggest you look at the terms and conditions of the supplier of a deed for your fund. Look in particular for disclaimers of liability - lawyers are not permitted to try to avoid liability or try to pass liability on to others if they make mistakes.
I have a direct duty to you
If you purchase a document from me this means that you are my client in respect of the legal drafting and advice work involved and I owe you a professional duty of care in respect of that work. As a barrister all such work is provided within the code of conduct of the Bar Association of Queensland (but please note that all drafting and legal advice applies Australia-wide). All work is covered by professional indemnity insurance to a limit of $1.5m; above that, liability is limited by a scheme approved under the professional standards legislation.
The documents are modern and up to date
My documents have been produced after a thorough appraisal of modern Australian superannuation law. They are not amendments of old documents. This helps to make them clean and clear, although as explained below, they are necessarily complex documents.
The step-by-step guides are very comprehensive
These are designed to make every step easy for you, and to ensure that any pitfalls are minimised. If you purchase a pack to establish a new fund, then the guides cover the planning stages before you start the fund, and go through in detail what you need to do to establish the fund and what you need to do afterwards. All non-obvious answers are given to questions in the forms you have to complete. To give you an idea of what the guides cover and how extensive they are, you can view the subject headings from these links (which open a new window):-
Headings in step-by-step guide
||using corporate trustee
|using individual trustees
|or if you need a qrops55+ pack
||using corporate trustee
|using individual trustees
|or in the case of a custodian trustee pack,
||with bank lender
|with related lender
The establishment packs contain a lot more than the trust deed
When setting up a new SMSF, the main document needed to establish the fund is the trust deed
. And if you are using a corporate trustee you will also need a corporate constitution
See my article SMSF - human or corporate trustee? for a brief summary of the differences between having a corporate trustee or individual trustees.
There are a number of other documents in the pack. You will need some of these to establish the fund, but the others will be useful during the running of the fund. To see what documents are within each pack, hover over the "full contents" sign under "details" in the buy my documents now page.
The Trust deed for a new fund
A well drafted trust deed is crucial to the fund because:-
- It is essential to ensure that the fund remains properly entitled to the concessional tax treatment in the Taxes Acts.
- The possibility of legal disputes should be minimised by keeping all wording clear in consistent throughout.
- In particular it is important to use the same meaning of words as in the superannuation and taxes legislation, since this is how they will be read by the ATO.
- All reasonable future eventualities should be catered for without requiring amendment to the deed.
One eye on the audit
SMSF trust deeds tend to be fairly lengthy documents, and although this is not my usual style, I came to the conclusion that this is a necessary evil in the case of an SMSF.
My main reasoning is that auditors are obliged to examine the trust deed as part of the audit and check for various things as described in the ATO guidance and the guidance issued by the Auditing and Assurance Standards Board. The ATO also publishes a trust deed checklist which the auditor is expected to follow. Whilst the guidance does not require the auditor to check that trust deed allows transactions that have been carried out by the fund (and are therefore within the powers of the fund), the auditor does need to check whether the fund is operating and is managed properly: so this is why the auditor is expected to check several parts of the deed to be satisfied about that.
The last thing that a trustee needs is a legal argument with the auditor as to whether the wording of the trust deed is sufficient. So in my trust deeds I have been cautious to cover everything which even the most conscientious auditor would look for in the deed even if these are not strictly necessary from a lawyer's standpoint. My trust deeds include all the requirements to satisfy the audit, and to satisfy the ATO if they ask to see it.
See the auditor's trust deed checklist and how my trust deed complies by clicking here:
checklist compliance result (opens in new window).
Declaration of trust and initial funding
The declaration of trust is central to the document and the trustee or trustees will declare that the assets which it or they hold or will hold, are held on trust for the ultimate beneficiaries (that is, the members of the fund).
The ATO has stated that it does not regard an SMSF as established (and therefore capable of being registered) unless it is funded (SMSF news issue 13). Hence the deed permits contributions to the fund to be made by discharging an expense of the fund.
The first expense of the fund will be the establishment costs, mainly the cost of the trust deed and other documents, and (if using a corporate trustee) the cost of incorporating the company.
There are three lawful ways of dealing with these establishment costs:-
- if the fund does not repay the payer, the payments can be treated as contributions to the fund on behalf of one or more members of the fund (see SMSF news issue 17 for this treatment); or
- if the fund does repay the payer, this can be treated as a repayment of the payer's expenses with no tax consequences (see SMSFR 2009/2 for this treatment); or
- the payments can be ignored by the fund entirely (not repaid to the payer and not reported in the accounts) - please note this option is available only to establishment costs and once the fund has been established such payments should be treated as contributions to the fund.
As part of the package, a Establishment Cost Election is included to choose between these options, whilst ensuring that $10 is treated as a contribution to the fund so that it can legally be established.
Provisions for amendment
Once the trust deed is executed it is binding on all parties, so it is important that it provides for its own amendment. However to avoid disputes, amendments should only be allowed if properly agreed by those who will be affected and only if permitted by law.
No amendment is permitted by the deed (in respect of a member's account) after the member has died or after the member becomes under a legal disability.
Contents prescribed by law
Many of the contents of the trust deed are prescribed by law. More care has to be taken about this than you might think. Some of the legal requirements are obvious and clear: for example the statement of "core purposes", the trustee's duties and other covenants. However, deep in the regulations are other matters which need to be in the deed to make sure that it complies. Naturally particular care has to be taken to deal with all these additional requirements.
Procedure to become members
Whilst some procedure is obviously required, the chance of a membership being found to be void for lack of form needs to be reduced as far as possible.
Minority or incapacity at the time of becoming member
The deed should be capable of dealing properly with minor children joining the scheme as members by the use of parents or guardians as legal representatives. A recent change in the law permits a parent or guardian of a minor child to be a director of the corporate trustee in place of the child; and in the case of individual trustees the parent or guardian may be a trustee in place of a minor child.
A person with a legal disability, such as someone who is incapable of managing their own affairs, can join an SMSF scheme by being represented by a legal personal representative (whether with corporate or individual trustees).
The documents also need to deal properly with what happens when a member ceases to be under a legal disability, such as when a child member becomes of legal age or when a member recovers from being incapable of managing their own affairs.
Delinquency or incapacity
There is also a distinct possibility of delinquency or incapacity of a member of the fund, a trustee or a director of the corporate trustee. This can happen either prior to taking benefits from the fund or after taking benefits from the fund. It is clearly important for the fund to continue to operate despite this event. Provision must be made in the trust deed for ready replacement of the trustee or director of the corporate trustee as the case may be, by the use of an enduring power of attorney if appropriate, and/or by the appointment of a legal personal representative.
My deeds include some important provisions protecting members who need to be represented without being too onerous for the trustees.
In the event of member's death
This is one of the most important parts of a trust deed. In my deeds there is a three pronged approach.
- A member may make a binding death benefit nomination (BDBN) which will bind the fund to distribute the member's account balance to one or more persons as directed (either by way of lump sum or income stream if permitted, or both). For the member's security both before and after death, the deed requires the BDBN to be witnessed by two independent witnesses and other formalities to be followed before it can be accepted by the trustee, or once it is accepted, before it can be revoked or amended. The BDBN can be made conditional on certain events if desired, or it can be made to lapse automatically after a length of time.
- An important provision in the deeds is that if the member has made a will, but has not made a current valid BDBN, or has made a current valid BDBN but only in respect of part of his account balance, on his death his account balance (or the remaining part of his account balance) will automatically fall into his estate. This accords with most people's expectations and removes the chance of the member's account balance being distributed contrary to the member's wishes by whoever takes control of the fund after the member's death. An advantage of this is that any superannuation moneys not otherwise disposed of by a BDBN will automatically be distributed in the same way as the remainder of the estate by the appointed executor in the member's will.
In the QROPS version of the deed, which is used by UK migrants to Australia, this clause does not operate if it would create or enlarge a liability to UK Inheritance Tax.
- The deeds also enable the member to make an expression of wishes. This works where the member has neither a current valid BDBN nor a will. In those circumstances the account balance does not fall into the member's estate but remains in the trust to be distributed by the trustee. This will be done in a manner in the discretion of the trustee but the expression of wishes will guide the trustee. There is a provision for the trustee to be given the chance to acknowledge the wishes and state an intention to follow them - this may give the member some peace of mind.
- As added security, the above requirements and rules cannot be amended after the deed has been first executed.
I recognise that some SMSF members might require different provisions and I am happy to write amendments to suit your particular case.
As for the death benefits which can be paid, this might change from time to time so the provisions are widely drafted. They do include powers which are currently known to be required such as the power to make anti-detriment payments.
Maintaining Australian residence
In order to retain its status as an Australian superannuation fund, the fund must satisfy the "residence tests" at creation and throughout its life. The provisions of the deed are drafted to facilitate this as far as possible, by (for example) permitting delegation of the central management and control of the fund and if necessary permitting or requiring the legal personal representatives to take over as trustees or as directors of the corporate trustee if applicable.
Contributions, internal movements and accounts, and splitting
The trust deed needs to permit all possible types and timing of contributions. While the deed (in order to comply with superannuation law) needs to require that contributions are credited to the fund properly, it also needs to permit the permitted delay in doing this and also movement between accounts within the fund including reserve accounts and the necessary segregation when appropriate to facilitate the various types of payments of benefit.
The trust deed needs properly to provide for voting powers. Generally the voting power should be based on the share of fund's value rather than one vote for each member, to avoid the possibility of a take-over of the management of the fund by those who have little monetary interest in it.
Cessation of membership
Provision should be made for the ending of membership either automatically on certain events or on resignation.
Appointment of trustee
In so far as permitted, it is important (in the individual trust deed) to provide for a replacement trustee if an existing trustee should resign or become unable to proceed. There are also provisions in the individual trust deed which facilitate a change to a corporate trustee if this is needed at a later date.
Fiduciary duties of trustee
These are largely prescribed by law but where the trust deed deals with future eventualities which will be handled by the trustee it is important to ensure that the duties extend to all the trustee's possible activities.
It is important to provide appropriate indemnities to the trustee or provide in so far as is allowed, payment of the trustee's (and the Fund's) costs and expenses.
Penalties, surcharges and taxes
In the unfortunate event that penalties or surcharges are payable, the trust deed should permit them to be paid from the fund, if it is lawful to do this in any particular case.
This should be as wide as possible whilst ensuring that the fund keeps its concessional tax treatment. The powers and the way in which the fund can be held needs to be drafted in the widest possible terms to permit investment in the many types of products which are currently available for such funds and in products which are not yet available, including those which have a borrowing element such as instalment warrants, without any impediment in the trust deed itself. The only impediment to the type of investment allowed should be in superannuation law.
Payment of benefit
This is another area where the law is likely to change from time to time, so the trust deed needs to give the trustee the widest possible powers to pay benefit, release the fund, or permit cashing transfer or rollover in any way permitted, whilst also being specific about the various options currently available.
The remainder of the trust deed will be concerned with trustee's powers of financial management, powers of distribution, and administration, insurance, accounting and auditing.
Proof against changes in the law and contribution and benefit rules
Some deeds are very specific in the provisions of superannuation law. For example some deeds prohibit a fund from accepting contributions of more than the contribution cap and then state the current applicable cap in dollar terms. Another example is that a deed might prohibit a member from making a contribution if they are over a (stated) age and do not satisfy the work test. Such provisions are completely unnecessary and just mean that the deed needs constant amendment (which may involve expense for the fund). And if those amendments are not made, the fund can be very much disadvantaged because the deed may well prohibit something which superannuation law permits. It is far better and also in a client's best interests to make the deed proof against changes in the law and proof against changes in the contribution and benefit rules by a mixture of permissive provisions with (where necessary) examples of current law and rules.
Change in powers
Whilst most of these trustee's powers are closely governed by superannuation law it is preferable if the deed empowers the trustee as widely as possible whilst making it clear that such powers are limited to superannuation law as it applies from time to time. Such provisions reduce the need to make amendments to the trust deed should superannuation law be liberalised in one direction or another: the trust deed ought automatically to cover the new trustee's power. Equally the wording must be such that if superannuation law becomes more restrictive, the trust deed does not attempt to override such changes. These provisions need to be carefully worded.
Corporate constitution (in the case of a corporate trustee)
It is important that the corporate trustee's constitution and the corporate trust deed are written to avoid inconsistencies between them. If these two documents come from different sources, there are likely to be many inconsistencies between them, or different use of the same wording. These would need to be dealt with before the documents are used.
It might be thought that it is possible to dispense with a constitution for the company and rely solely on the replaceable rules in the Corporations Act 2001, however this does not work. One reason for this is that the replaceable rules do not apply to companies which have the same person as both its sole director and sole shareholder, and in other cases many of them are inappropriate for a corporate trustee.
A corporate trustee needs a constitution anyway, because it needs to include restriction of distribution and sole purpose clauses to ensure that the company will be regarded as a "sole purpose company" under Reg3(f) of the Corporations (Review Fees) Regs 2003. This then reduces the annual fee payable to ASIC quite a bit. And to comply with the superannuation laws it is necessary for the constitution to restrict remuneration of the Company and of its directors.
The constitution needs to contain some provisions to facilitate the operation of the SMSF.
In particular, there needs to be automatic appointment of directors upon becoming a member or on the happening of certain events (this is important to avoid "deadlock" in the case of family disputes) and alternative provisions in the case of death or non-capacity or other eventualities.
There needs to be a provision permitting the appointment of alternative directors to enable the fund to operate in the absence of a member of the fund. There can be similar provisions in the case of an enduring power of attorney.
The voting powers of directors and of shareholders should to reflect member's balances in the fund. And appropriate provisions as to shares which reflect the fact that the company is a trustee. Again the constitution needs to include indemnities of directors and shareholders for their own personal protection.
Custodian trust documents
If you are looking for documentation to enable your fund to invest in real property with a loan (under a limited recourse borrowing arrangement) then there are four packs for you to choose from, depending on whether the loan is from a bank or finanancial institution, or from a related lender (perhaps from one or more members of the fund) and depending on whether your fund has a corporate trustee or individual trustees.
There is also a pack if you are looking for your fund to borrow money from a related lender in order to invest in personal property (shares, units, futures, precious metals or gems etc.). This pack permits your fund effectively to accept a margin loan (under a limited recourse borrowing arrangement) from a member of the fund in order to make one or more (concurrent or consecutive) such investments. Since each investment requires a separate loan and a separate trust to be established the documents are carefully drafted to ensure this occurs with the minimum of red tape.
Again there are comprehensive step-by-step guides to help you through the process. The need for a custodian bare trust arrangement is explained, as is the resulting structure and things to watch out for.
I do advise that the bare trustee is a company - and it can be a special purpose company which keeps the ASIC fees down. If you have never incorporated a company before you will be surprised how easy it is to set up and to maintain (it does not need to make financial statements or report to the ATO).
Care is taken also to guide you through the various loan options - to help you consider the best term of the loan and repayment arrangements and to help you argue the case for the loan and for the investment in your investment strategy. There is a sample addendum to your existing investment strategy in the pack to help you with this.
If the loan is from a related lender (not a bank), guidance is given how to assess market rates and to prove that you have used a market rate to the ATO should you need to do so. There are certificates in the pack to help you with this, and there is an Excel calculator which you can use to calculate the amount of each payment and how it is split between principal and interest. There are two loan deeds in the pack suitable for a related lender - one is if you wish to provide security and the other is if you do not.
In the case of real property purchase, the packs assume that you will engage solicitors to carry out the conveyancing process, and to assist with this in each pack there is a "note to conveyancing solicitors" which you can give to your solicitors if they are in doubt as to what to do. This should help to keep your conveyancing costs down. In the case of personal property purchase there is guidance on the special provisions which apply and the pitfalls to avoid.
All wording in the deeds has been carefully chosen to accord with the superannuation law which covers limited recourse borrowing arrangements and recent ATO decisions on the matter.
The documents are reasonably priced
I believe my documents are priced reasonably to reflect the amount of work involved in putting them together and keeping them up to date, my professional overheads, and their value to you.
After sale support
I know from my private practice work that clients sometimes like to come back to me seeking some additional guidance or advice closely connected with work I have done for them. I am happy to deal with such requests arising from document sales without charge, within reason. I will inform you if I need to charge for any such further work.
If you provide your email address during the purchase process and keep me informed if you change it, I can email you if there are any important updates required.
13 March 2016
Copyright © Jeremy Gordon