Getting to know your SMSF Trust Deed

Transcription

1 Getting to know your SMSF Trust Deed

2 Trust Deed Age

3 What are you missing out on? Regulatory change from OSS to SIS and Corps Act Related parties 3 year binding death benefit nominations Contribution splitting Co-contributions Tax deductible contributions to 75 Abolition of compulsory cashing rules New account based pensions Lapsing and non lapsing death benefit nominations Legal personal representatives Survival period for death benefit nominations Transition to retirement income streams Borrowing provisions Stronger estate planning and legal personal representative provisions Note that these are examples and this is not a complete representation of legislative changes or changes to our standard deed over the period 1994 to 2015

4 Agenda An introduction to Trust Law Importance of the Trust Deed Overview of an SMSF Trust Deed The Madgwicks SMSF Trust Deed Reviewing your SMSF Trust Deed Panel session scenarios and questions from the floor How can we help?

5 An introduction to Trust Law Elements of a Trust Trustee Beneficiary Trust Property Terms of Trust (e.g. Trust Deed) These elements exist in all types of Trusts, including SMSFs.

6 Importance of Trust Deed The Trust Deed governs the rules of the SMSF SMSFs are a form of trust Like all trusts they must have a Trust Deed A trust deed is a legal document that sets out the rules and objectives The primary obligation of a Trustee is to carry out the terms of the trust

7 Importance of Trust Deed The Trust Deed governs the rules of the SMSF The Trust Deed is the source of the Trustee s powers and duties And the rights of members and beneficiaries If the Trust Deed does not allow for something, it probably cannot be done The Trust Deed forms part of the fund s governing rules Governing rules may include other documents not just Trust Deed.

8 Overview of an SMSF Trust Deed The Trust Deed and the SIS Act The SIS Act requires an SMSF to comply with certain legislation Section 52B requires certain covenants to be included in the governing rules of an SMSF: to act honestly in all matters affecting the entity to exercise a degree of care, skill and diligence as an ordinary prudent person to act in the best interests of the beneficiaries to keep fund assets separate to formulate and give effect to an investment strategy to not do anything that would impede the proper performance and function of powers to manage reserves responsibly to allow beneficiaries access to certain information to do other acts as prescribed in the SIS Act.

9 Overview of an SMSF Trust Deed The Trust Deed and the SIS Act The only provision required to be in the SMSF Trust Deed is s19 of the SIS Act States the governing rules of the Fund must provide the Trustee be a constitutional corporation Or the sole or primary purpose of the Fund is the provision of old-age pensions Usually in the Recitals section of the Trust Deed.

10 Overview of an SMSF Trust Deed The Trust Deed and the SIS Act The SIS Act does not authorise trustee action The SIS Act and Regulations are prescriptive they tell Trustees what they should and should not do Outline penalties for breaches Also links with taxation legislation to show tax consequences of certain actions excess contributions, death benefits, etc. They permit rather than authorise What the SMSF can and can t do must be in the governing rules.

11 Overview of an SMSF Trust Deed What should be in the Trust Deed? A clear establishment date A clear definition of the relevant law or superannuation law A compliance clause stipulating that the deed is to be read in conjunction with the superannuation laws that the deed is deemed to include any governing rules in order for the Fund to be a complying fund that in the case of any inconsistencies between the governing rules and the law, the relevant law is to take precedence.

12 Overview of an SMSF Trust Deed Dealing with members Details of how members are admitted to the Fund Ceasing to be a member death, payment of all member benefits How proceedings are conducted: Unanimous vote majority vote, etc. Members providing information to the Trustee Removal of a member.

13 Overview of an SMSF Trust Deed Appointment of Trustees Eligibility to become a Trustee Appointment and removal of a Trustee Incapacity of a Trustee/member appointment of Enduring Powers of Attorney Death of a Trustee/member appointment of Legal Personal Representative How Trustees are to conduct proceedings: Unanimous vote majority vote, etc.

14 Overview of an SMSF Trust Deed Powers of the Trustees Express power to allow the Trustee to borrow Rules for the acceptance of contributions including in-specie contributions Rules for the payment of benefits, including the nomination of reversionary beneficiaries Rules in relation to binding death benefit nominations Details of how a fund may be wound up and in what circumstances Details about how the Deed can be amended and any specific requirements of that amendment.

15 Overview of an SMSF Trust Deed Estate and Succession Planning The two main areas of concern are: The Binding Death Benefit Nomination Dealing with control of the SMSF on death of a member. The Trust Deed should include: The ability for the deceased member s LPR to be appointed as Trustee or Trustee Director This is allowed under the SIS Act but is not automatic

16 Overview of an SMSF Trust Deed Binding Death Benefit Nominations (BDBN) The Trust Deed should include: The ability for the member to make a BDBN and the obligation of the Trustee to implement it Non-lapsing BDBNs The Trust Deed does not rely too much on BDBNs being in accordance with the Act and Regulations Payment of specific assets or interests.

17 Overview of an SMSF Trust Deed Example Binding Death Benefit Nomination (BDBN) The SIS Act and SIS Regulations state the Fund s governing rules may allow for a BDBN (s59(1a) and Reg 6.17A(4)). But s59(1) specifically excludes SMSFs and states BDBNs lapse every 3 years. So if SMSFs want to provide a BDBN it must be expressly stated in the Fund s governing rules. It means SMSFs may provide non-lapsing BDBNs. But need to be careful of the BDBN wording in the Trust Deed.

18 Overview of an SMSF Trust Deed Control of the Fund and Succession Planning The Trust Deed should include: The ability for the deceased member s LPR to be appointed as Trustee or Trustee Director This is allowed under the SIS Act but is not automatic Should consider a Clause where discretion is being exercised on the death of a member This Clause should state no death benefit can be paid unless LPR is appointed as Trustee.

19 Overview of an SMSF Trust Deed Example Legal Personal Representative (LPR) stand in as Trustee The SIS Act states a member s LPR can stand in as Trustee (or Director of a Corporate Trustee) and the Fund will still be considered an SMSF. Fund will still comply if the member has died, is under a legal disability or has moved overseas. However just having an LPR does not mean they will automatically become Trustee of the Fund. As the ATO states in SMSFR 2010/2 the SMSF s Trust Deed must allow for the LPR s appointment.

20 Overview of an SMSF Trust Deed What about a catch-all clause? Can be problematic relying on catch-all clauses. The Trustee can do anything that is not prohibited by the SIS Act and SIS Regulations. Donovan v Donovan [2009] QSC 26. The Trust Deed of the SMSF stated that the BDBN must be in form required to satisfy the Statutory Requirements. Therefore the BDBN expired every 3 years and needed to be in the form prescribed by the SIS Regulations.

21 Overview of an SMSF Trust Deed Donovan v Donovan [2009] QSC 26 Two years before the Member died he wrote a letter to the SMSF Trustee. The letter expressed his wish for his benefit to go to his Legal Personal Representative. The benefit was then to be distributed according to his Will. After his death the validity of the deceased s letter was challenged in Court. The deceased s second wife (the sole remaining Trustee) stated is was not a valid BDBN and therefore didn t bind the Trustee. She stated the Trustee (herself) was able to exercise discretion as to whom the deceased s benefit was to be paid.

22 Overview of an SMSF Trust Deed Donovan v Donovan [2009] QSC 26 The deceased s daughter from the first marriage argued the BDBN did not need to take any particular form. Therefore the deceased s death benefit should form part of his Estate. The Court held the BDBN was not in a form that bound the Trustee. The nomination needed to be in the form that satisfied the Statutory Requirements according to the Trust Deed. Therefore it needed to be in the form prescribed in Regulation 6.17A(6) of the SIS Regulations (1994).

23 Overview of an SMSF Trust Deed Donovan v Donovan [2009] QSC 26 The outcome was that, whilst the Trustee was entitled to take into account the desires of the Member, it was not bound by the nomination. This was because it was not in a form that bound the Trustee as per the Statutory Requirements. Therefore the Trustee was free to exercise absolute discretion in the payment of the benefit. The deceased s wishes were ignored.

24 Overview of an SMSF Trust Deed The Trust Deed governs the rules of the SMSF Trust Deeds must be kept up-to-date. It is the Fund s governing rules that dictate what strategies a Fund can undertake. Seek advice on investment strategies, succession planning, as your SMSF is an important asset. As circumstances change, it may be time to review your Trust Deed as part of your overall SMSF strategy.

25 The Madgwicks SMSF Trust Deed Features and benefits of the Madgwicks SMSF Trust Deed include: Legal personal representatives Non lapsing binding death benefit nomination Corporate trustee company constitution Payment of death benefits Reversionary pension v Binding death benefit nomination In specie payments Transfer to new SMSF

26 Reviewing your SMSF Trust Deed When to review the Trust Deed? Key stages of an SMSF that will require the deed to be consulted (and possibly amended) include: Any structural changes to a fund, including adding a member, changing trustee or winding up the Fund Borrowing to purchase an investment When a member is considering commencing a pension When benefits are to be paid out of the Fund When considering a member s estate and succession plan.

27 Break

28 Panel Session Questions from the floor

29 Estate planning scenarios Bob is married to Kate, his second wife Bob and Kate are both trustees of the Bob and Kate Superannuation Fund Bob has two children from his previous marriage to Jenny Bob has a Binding Death Benefit Nomination naming Kate and his two children as beneficiaries (50% to Kate, 25% each to his two children) On Bob s death, Kate decides that as the sole remaining trustee of the superannuation fund she will pay Bob s entire death benefit to herself How does the deed and superannuation law deal with this situation?

30 Mental incapacity scenarios Bill and Betty are married Bill and Betty are trustees of the Happy Days Superannuation Fund At age 56 Bill develops early onset dementia and can no longer manage his affairs How does the deed and superannuation law deal with this situation?

31 Brett and Phillip are brothers Brett convinces Phillip to start a self managed superannuation fund so that they can invest in the Sydney property market which is going gangbusters Both Brett and Phillip become trustees of the Future Plans Superannuation Fund Brett rolls $450,000 from his retail fund into the SMSF Phillip rolls $325,000 from his industry fund into the SMSF They decide to use $500,000 from the fund, together with borrowings of $500,000 to purchase a residential property in Sydney s inner western suburbs How does the deed deal with this situation?

32 In specie payment scenarios Wendy is 56 and currently working She owns a portfolio of shares that were left to her by her father who passed away in 1992 The share portfolio, mainly blue chip stocks is worth approximately $480,000 Wendy is thinking about selling the shares and using the proceeds of the sale to make a contribution into her SMSF How does the deed deal with this situation?

33 Residency scenarios Andrew and Richard are members and trustees of the Too Good To Be True Superannuation Fund Andrew has been offered an overseas posting for up to 5 years during which time he is unlikely to return to Australia though he is sure that at the end of the posting he will come back How does the deed and superannuation law deal with this situation?

34 Family law scenarios Jody and Mark have been married for 15 years and are members and trustees of the Jody and Mark Retirement Fund The fund has a total balance of $1.2m, with $800,000 in Mark s member account and $400,000 in Jody s Unfortunately their marriage has broken down and they are going through divorce proceedings As part of the financial settlement, Jody is seeking a superannuation splitting order that would see $600,000 of the fund balance being transferred to her and the other $600,000 remaining with Mark How does the deed and superannuation law deal with this situation?

35 Services to support SMSF Trustees How can we help? Contact your Fund Accountant or Client Service Representative for Deed upgrades Corporate Trustees Death Benefit Nominations Advice technical, structuring and procedural advice for your specific circumstances

36 Disclaimer This presentation was prepared by SuperIQ Pty Ltd (ABN ) ( SIQ ). Material contained in this presentation is a summary only and is based on information believed to be reliable and received from sources within the market. The information is believed to be accurate at the time of compilation and is provided by SIQ in good faith. However, the statements including assumptions and conclusions are not intended to be a comprehensive statement of relevant practice or law that is often complex and can change. It is not the intention of SIQ that this presentation be used as the primary source of readers information but as an adjunct to their own resources and training. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. SuperIQ does not guarantee the performance of any fund or the return of an investor's capital. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and SIQ will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded). Individual circumstances, in particular relating to self managed superannuation funds, may vary greatly. This presentation has been prepared for general information purposes only and not having regard to any particular person s investment objectives, financial situation or needs. Accordingly, no recommendation (express or implied) or other information should be acted upon without obtaining specific advice from an authorised representative.

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