What Is an SMSF Trust Deed?

An SMSF is established by a legal document called an SMSF Trust Deed. An SMSF is a type of trust and therefore requires a trustee to hold assets on behalf of the beneficiaries, namely the members of the SMSF. The trustee(s) and the members generally establish an SMSF together. An SMSF is a private trust that can have up to six members and is typically set up by a family group, sometimes including adult children, to manage their own superannuation.

The trust deed is accompanied by governing rules. Together, these two documents are often referred to simply as the “SMSF deed”. Once the deed is properly executed, it brings the SMSF into existence and sets out the rules under which the fund operates.

In an SMSF, the individual trustees are generally the same people as the directors of the corporate trustee. The fund and its members receive concessional tax treatment, provided the fund elects to be regulated by the Australian Taxation Office (ATO) and complies with the superannuation laws and regulations (SIS).

Trusts are governed by the Trustee Act of each state and territory, which sets out the appointment, replacement, powers, duties, and administration of trustees and trust property. An SMSF is a trust, and therefore the trustee, whether an individual or a company, must fulfil their duties in accordance with the applicable Trustee Act.

What rules are typically included in a trust deed?

Good quality SMSF trust deeds are designed to have broad powers so as not to limit the trustee in any way and allow for future legislative changes in the SMSF space.

The most significant rules include:

• The sole purpose test requires that the fund be set up to provide retirement benefits to its members or members’ beneficiaries on the member’s death
• The trustee must formulate and review the fund’s investment strategy in a formal document
• When a trustee can accept contributions
• Paying out member benefits
• Starting a pension
• Paying out death benefits
• Who can be a trustee
• Appointment and removal of a trustee
• Amendment of the trust deed
• Acceptance of members
• Investment restrictions, especially limiting transactions between related parties
• How a fund can be wound up

SIS legislation automatically incorporates the covenants into the fund’s trust deed, regardless of whether they are formally set forth in the deed. The covenants reflect general trust law and include that a trustee must:

• act honestly
• exercise care, skill and diligence
• separate their personal assets from the fund’s assets (including directors)
• formulate, review and implement an investment strategy taking into account risk, liquidity, diversification and the ability of the fund to discharge its current and future liabilities
• performing and exercising the trustee’s power in the best financial interest of the members
• allow members access to prescribed information such as the trust deed, trustee minutes/resolutions, the investment strategy and financial statements

When should I update my SMSF trust deed?

The fund’s trust deed should be reviewed and updated regularly, say, at least every 5 years, particularly after significant changes to tax or super laws relating to superannuation. For example, legislation like:

• The Transfer Balance Cap (TBC) was introduced in 2017, putting a cap on how much super a person can have in pension mode. Trust deeds were required to be updated to give trustees the power to roll back excess pension balances into the member’s accumulation account (only if the trust deed did not already allow for this).
• The recent introduction of Division 296 tax laws may mean a member wants to release the personal tax from their member balance – most modern deeds may allow for this, but older deeds may not

It is prudent to review your deed to ensure it does not prevent you from taking advantage of opportunities available under SIS, and when there are significant fund changes, such as:

• adding or removing a member
• ensuring investments are allowed – some old deeds do not allow foreign investments or borrowing under a limited recourse borrowing arrangement
• non-lapsing binding death benefit nominations (nlbdbn)– ensure your deed does not incorporate the SIS legislation, which may prevent a member from having a nlbdbn
• starting a pension – some older deeds do not allow account-based pensions or transition to retirement pensions introduced on 1 July 2007
• the trust deed sets out the rules about death benefits – including rules about death benefit nominations, pension beneficiaries, and the order in which nominations take priority, such as a pension beneficiary before a binding death benefit nomination. It is crucial to ensure your estate plan can be carried out in accordance with your wishes and not be prevented by the fund’s trust deed. If a member wants to make a binding death benefit nomination (bdbn), your trust deed has to state that the trustee must follow the member’s properly signed and dated bdbn.

As a rule of thumb, any SMSF trust deed prepared before 2008 will need to be amended, as there were significant changes to the SIS legislation under the Simple Super reforms.

What happens if I lose my SMSF’s trust deed?

The trustee of an SMSF must act in accordance with the fund’s trust deed and any other subsequent updates. When the trust deed is lost, all avenues must be exhausted in trying to locate it, such as:

• checking with the fund’s lawyer, accountant, past auditors and financial advisor, who may have an electronic or physical copy
• asking the trust deed provider whether they have a copy of the version your fund used
• If you have a copy (signed or unsigned), it may be possible for the trustee(s) or directors to have a deed drafted acknowledging the loss of the original, confirming that the copy is the rules under which the fund is operating, and then updating the trust deed to have a current signed variation on file. Seek advice to ensure this will satisfy legal and SIS requirements.
• another, much more complex and costly remedy is to approach the Supreme Court in your state or territory to obtain an order on how your fund should be administered.
• you could also consider winding up your fund if this is appropriate.