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DBA Lawyers’ SMSF deed

Daniel Butler ([email protected]), Director, DBA Lawyers

SMSF DeedNot only does DBA Lawyers have the best SMSF deed and documents available, we offer many value added benefits that are not available in other deeds.

A review of a recent non-DBA Lawyers’ SMSF deed

Before discussing some of the benefits of our SMSF deed, I summarise some review points in considering another supplier’s SMSF deed. DBA Lawyers is often asked to perform a review and provide feedback on other suppliers’ SMSF deeds as many advisers are waking up to the fact that there are some unsatisfactory documents being supplied. Here are several review points detected on a recent review of a non-DBA SMSF deed:

  • The deed and related documents had been updated in mid-2016 after the super reforms announced in the May 2016 Federal Budget but had not been updated for the raft of subsequent changes; therefore the deed was considerably out of date.
  • The deed did not provide a binding death benefit nomination (‘BDBN’) that could be relied on since the BDBN was based on compliance with the BDBN criteria in the Superannuation Industry (Supervision) Act 1993 (Cth) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SISR’). The Supreme Court of South Australia in Retail Employees Superannuation Pty Ltd v Pain [2016] SASC 121 stated at [512]:
    • The structure and drafting of sections 58 and 59 of the SIS Act and regulation 6.17A of the SIS Regulations give rise to ambiguities, uncertainties and potentially unintended consequences … It is highly desirable that those provisions be reviewed by the Commonwealth and recast.

    The BDBN provisions in the DBA Lawyers’ SMSF deed do not rely on the SISA or SISR provisions. Many other SMSF suppliers’ deeds do. Therefore, we recommend that each BDBN that is not based on a DBA Lawyers deed and is a BDBN made within the past three years be reviewed as soon as practicable to ensure the deed and the BDBN are valid and binding.

    Note that DBA Lawyers is regularly engaged to provide opinions on challenging BDBNs and our general view is that no BDBN is binding unless it is proved to our satisfaction. Refer to the article we prepared prior to the REST decision above called The legal minefield of BDBNs where we outline at least seven factors why most BDBNs fail. This is one reason why we strongly recommend that each BDBN be prepared or at least reviewed by a lawyer with SMSF expertise.

  • The deed did not provide the requisite power to ensure an automatically reversionary pension will satisfy the ATO’s criteria in TR 2013/5 and LCG 2017/3. The deed must, among other things, include a power to fetter or limit the trustee’s discretion and the deed must be drafted so that no discretion can upset a reversion as the ATO consider any discretion jeopardises the effectiveness of a reversion.

    Similar to our criticism above about BDBNs, many other SMSF suppliers’ deeds do not have the requisite provisions to effect an automatically reversion pension nor do they deal with what takes priority in the event that an automatically reversionary request conflicts with a direction under a BDBN (assuming both of these requests are valid and binding). We refer you to our article called What wins out – an automatically reversionary pension (‘ARP’) or a binding death benefit nomination (‘BDBN’)?.
  • We continually detect SMSF deeds with inappropriate provisions. One such deed specified that a trustee may only call a trustee meeting by providing seven days written notice. Naturally, as most deeds are for two family members, this type of deed is inappropriate where greater flexibility is required and many meetings are held via circulating resolutions (without the need to provide notice or hold a meeting, elect a chair, etc) and a more up to date deed should have flexibility for a trustee to communicate and hold meetings via email and other technology.

The old saying ‘caveat emptor’ or buyer beware is more apt than ever with SMSF documents, given the constant changes and complexity of this area. One key point that I raise with choosing a deed supplier — go for a law firm that is qualified and is constantly keeping up to date with all of the changes. Naturally, DBA Lawyers recommends that all legal documents be obtained from a law firm with expertise in SMSF and related law.

Some comments on the DBA Lawyers’ SMSF deed

  • Rules are up to date for superannuation reforms — Our deed has been updated to cover the super reforms, including having express powers covering the transfer balance cap and related requirements and greater flexibility to make elections or any tax choices, including for CGT relief.
  • Strategic rules for power to appoint and remove trustees — Our SMSF deed gives the members who (either individually or combined) hold more than 50% of benefits in the fund the power to appoint and remove the trustee. Click here for more information on SMSF succession.
  • Allows for successor trustees — Our deed allows for successor trustees (for example, a trustee’s legal personal representative (‘LPR’)) to step in as trustee on the death or loss of capacity of an existing trustee. The DBA Lawyers’ company constitution contains mirroring mechanics for successor directors.
  • Streamlined and effective BDBN rules — Our BDBN documentation does not rely on the SISA or SISR provisions and provides a firm basis for making an effective BDBN. We also include a BDBN template which, among other things, allows for two levels of cascading and allows a member to make their pension automatically reversionary, overriding the pension documents as necessary.
  • Members’ wishes can be represented by attorney or executor — All rights given to a member can also be exercised by the member’s LPR. Accordingly, where a member is dead or incapacitated, their LPR (eg, the member’s attorney acting under an enduring power of attorney or, following death, the executors of the deceased’s estate) can exercise the member’s rights in the member’s place, eg, a withdrawal of benefits before a member’s death if the member has only days to live.
  • Power to admit conditional members — It is legally and practically very difficult to remove a member from an SMSF once there is a falling out. Our deed allows members to be admitted subject to certain trigger events that cause the member to be paid or rolled out. This can serve as a useful tool especially where a second spouse or children are included in an SMSF and there is a falling out. Refer to our articles called The advantages of conditional membership in an SMSF and Admit a conditional member.

Strategic and other advantages of the DBA Lawyers’ SMSF deed

  • Latest SMSF strategies and traps are addressed — DBA Lawyers regularly builds the latest strategies into our SMSF deed (this includes related areas such as stamp duty and asset protection).
  • Bankruptcy protection clauses — Our deed is drafted with a view to bankruptcy protection, eg, in minimising pension payments that could be accessible by creditors.
  • Trustees empowered to do normally restricted things — Many do not realise that a trustee is not allowed to carry on a business (eg, a property development business), be remunerated for services, or invest in a single bulky asset without diversification, etc, unless the trust deed permits. A trustee may be sued for these things by a disgruntled beneficiary if things go ‘pear shaped’. Our deed empowers the trustee to do these activities and more.
  • Detailed memo and PDS — A detailed memo and PDS describing the operation of an SMSF is included with every SMSF deed. These documents, in addition to complying with the law, can greatly assist members and trustees to understand their duties and entitlements.
  • Eligible for the Annual Update Service — For those who want peace of mind that an SMSF’s deed is kept up to date, we offer the Annual Update Service that issues a deed update each 1 July for a small annual cost. Many advisers enjoy an added benefit from the Annual Update Service because all their SMSFs have our latest deed, allowing for easier administration and compliance.
  • Backed by lawyer support — All of our documents and services are supported by Australia’s leading SMSF lawyers. Every DBA Lawyers deed and document package is tailored and signed-off by one of our SMSF lawyers. Using us for documents means you get the best support. Many other suppliers claim to have legal sign-off but read their terms and conditions which then ‘cast you to the wind’.

An SMSF’s deed is the cornerstone that makes or breaks many SMSF strategies. Accordingly, the DBA Lawyers’ SMSF deed represents tremendous value.

A new SMSF (with our deed) can be ordered here. An update to an existing SMSF’s deed can be ordered here.

We also offer a large range of related documents and services which complement our SMSF deed.

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Note: DBA Lawyers hold SMSF CPD training at venues all around. 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.

3 July 2017

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