The world is changing – is your SMSF deed up to date?

Every year, ongoing changes are made to our super, tax and related laws that impact SMSFs.

Failing to respond to these changes can result in SMSF trustees failing to maximise opportunities, being limited in their actions and being exposed to legal and other risks. For example, an SMSF deed with limited investment powers may be precluded from investing in certain opportunities and trustees can be exposed to any losses if they are acting outside the power under their governing rules.

In short, SMSFs that do not maintain their governing rules up to date with ongoing changes can be placed at considerable risk. Advisers should keep their SMSF clients informed on when a deed update should be undertaken. DBA Lawyers notifies its adviser clients of relevant changes to keep them informed in this regard.

If the law says that it’s possible, do I need to update?

What a trustee can and cannot do is largely determined by the fund’s SMSF deed and governing rules. This means that even if the law allows an SMSF trustee to do something, if the governing rules of the fund preclude it — the trustee will be at risk and liable for any damages or loss.

The multitude of changes are such that DBA lawyers updates its deed on, at least, an annual basis every 1 July. Some recent changes, for example, have covered:

• Binding death benefit nominations (BDBNs) given the High Court’s landmark decision in Hill v Zuda [2022] HCA 21.
• Contributions given the removal of the ‘Work Test’ for those between 67 and 75 years old from 1 July 2022.
• Corporate collective investment vehicles (CCIVs), cryptocurrency, non-fungible tokens (NFTs) and blockchain technology, given the expanding investment markets now available to SMSFs.

We commonly see clients seeking an SMSF deed update to implement a strategy such as commencing a pension, undertaking a limited recourse borrowing arrangement or undertaking succession planning including wanting a legally sound deed to prepare BDBNs.

Do my governing rules need updating?

A frequent question we are asked is ‘does my SMSF deed need updating?’

Given the ongoing and regular changes that continually occur (including legislative, regulatory, practical and strategic) we generally recommend that an SMSF deed be updated on at least a 5-yearly cycle. For instance, if you haven’t updated your SMSF deed in the last 5 years, in addition to a raft of other things you may not be able to:

• have more than 4 members in your fund (from 1 July 2021, SMSFs can have up to 6);
• use technology for meetings, execution and certain communications; or
• make downsizer or First Home Super Saver Scheme contributions.

Click here for a list of some key changes since mid-2007. This give an idea on what a particular fund may be missing out on (or doing wrong).

Other frequently asked questions

How do I update my SMSF deed?

The best way to update an SMSF deed is to have one of our SMSF lawyers review the latest fund document and prepare a deed of variation that adds our latest governing rules. This service is best ordered via our online portal.

What if there is a subsequent unexpected change?

Naturally, we aim to ensure that our documents are not easily rendered out of date, however, the Government can easily, and often without notice, announce a raft of changes (particularly in its May Federal Budget). The Annual Update Service allows your ‘investment’ in a DBA SMSF deed to be maintained up-to-date via a convenient and cost-effective basis where, each 1 July, your fund accesses our latest SMSF governing rules and related SMSF materials.

What if I have multiple prior deeds?

Funds with multiple prior deeds should consider asking one of our SMSF lawyers to undertake an SMSF Deed History Review. Our lawyers will review the fund’s full deed history to determine if there are any issues that require remedial work to minimise future risks (eg, is there a legally valid prior document trail that will support a BDBN, pension, LRBA, etc?). The lawyer involved will provide a fee proposal for this review.

Its best to have this review undertaken before ordering an SMSF deed update. Note that our SMSF deed update price is on the basis that we review the fund’s latest SMSF deed (and not prior deeds that may impact the latest deed if the prior deeds were not validly varied and executed).

Why have a law firm prepare documents when there are cheaper options?

Yes, there are cheaper, typically non-qualified suppliers. However, these suppliers can prove more costly as there is typically no lawyer reviewing your instructions and tailoring the documents to make them ‘fit for purpose’. Also, unless the supplier that prepares the documents is a law firm you may not be covered by professional indemnity insurance.

Please note that we are focused on quality and excellent service and do not compete on price. Our lawyers work at the ‘coal face’ in the SMSF industry by providing advice and documents as its core activity. By engaging our firm, you gain valuable ‘peace of mind’ that a law firm with experts in the field have prepared your legal documents.

Conclusions

We recommend that you engage an SMSF law firm to update your SMSF deed. Advisers assume considerable risk by obtaining SMSF deeds from non-qualified suppliers. Having a quality SMSF deed supplier is a prudent choice considering the potential downside risks.

Related articles:

• Advantages of the DBA Lawyers SMSF deed (2022-23)
• SMSF deeds: how does your supplier rate?
• Does my SMSF deed need updating given ongoing changes?

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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional. The above does not constitute financial product advice. Financial product advice can only be obtained from a licenced financial adviser under the Corporations Act 2000 (Cth).

Note: DBA Lawyers presents monthly online SMSF training. For more details or to register, visit www.dbanetwork.com.au or call 03 9092 9400.

For more information regarding how DBA Lawyers can assist in your SMSF practice, visit www.dbalawyers.com.au.

By Daniel Butler ([email protected]), Director, DBA Lawyers and Cassandra Hurley ([email protected]), Lawyer, DBA Lawyers

6 February 2023