Practicalities involved in running own SMSF

[village idiot]

I have also had a look at the generic trust deeds supplied by two of the discount/online suppliers that have been referred to in this forum. (prepared by lawyers)

interestingly, they use exactly the same document for either a person or corp trustee. The docs just say something to the effect that;
'if the trustee is a corpn then xxxxxxx'
and then
' if the trustee(s) is a person(s) then yyyyyy'

it doesnt seem ideal to do it that way if you ask me,and there is certainly scope for ambiguity, but I guess it shows there isnt that much difference in the way the deeds would be written. I am hoping jorgon might explain the need for different deeds?

also nothing in the deeds actually says that if the trustees resign then the replacement trustee must be of the same species, suggesting that there isnt neccessarily a 'fork in the road' if the trust deed allows for it in the first place. Again, perhaps it does say so somewhere else in Super law

 

[Julia]

I have also had a look at the generic trust deeds supplied by two of the discount/online suppliers that have been referred to in this forum. (prepared by lawyers)

interestingly, they use exactly the same document for either a person or corp trustee. The docs just say something to the effect that;
'if the trustee is a corpn then xxxxxxx'
and then
' if the trustee(s) is a person(s) then yyyyyy'

it doesnt seem ideal to do it that way if you ask me,and there is certainly scope for ambiguity, but I guess it shows there isnt that much difference in the way the deeds would be written.

That actually seems pretty sensible imo. If you have a Trust Deed with that sort of optional wording then isn't it much easier to change the trustee structure if you were to want to do that?

Ves, thank you for additional information. Yes, I suppose I could put it together myself but it's an important matter and I'd be worried about omitting something important for the sake of saving a few hundred dollars.
There seems to be quite a variation of costs for the same thing.

Overall, this is the great thing about a forum like ASF (thanks, Joe) where people are happy to contribute what they know or their experiences.

I am hoping jorgon might explain the need for different deeds?

Me too. Plus I asked a question earlier in response to jorgon's suggestion that two super funds could run concurrently, until the term deposit life was exhausted, but in the previous paragraph he suggested that existing accounts could be transferred to new name without penalty (unless I misunderstood what was being suggested).

 

[village idiot]

That actually seems pretty sensible imo. If you have a Trust Deed with that sort of optional wording then isn't it much easier to change the trustee structure if you were to want to do that?

That would appear to be the case from my interpretation of the particular deeds I have read. They say you must have either corporation or humans as trustee, but at no point do they specify which one it shall be for this trust , nor do they say that once you have had one type of trustee thou shalt not be allowed have the other type.


I have also read everything there is on the ATO site and the SIS act, and I cant find anything that specifically says that you must chose either the corporate or human trustee now and that precludes the other type of trustee in the future

However it is a complicated area and there may well be something I have missed to that effect, somewhere.

 

[Ves]

That would appear to be the case from my interpretation of the particular deeds I have read. They say you must have either corporation or humans as trustee, but at no point do they specify which one it shall be for this trust , nor do they say that once you have had one type of trustee thou shalt not be allowed have the other type.


I have also read everything there is on the ATO site and the SIS act, and I cant find anything that specifically says that you must chose either the corporate or human trustee now and that precludes the other type of trustee in the future

However it is a complicated area and there may well be something I have missed to that effect, somewhere.

Thinking about it, it sounds like it is a very generic deed. I'm not a lawyer, but it sounds like one of those "one size fits all" type of deeds without having read it.

I guess it is fine if you have very basic needs. But I would be worried about things such as binding or non-binding nominations (are they allowed under the deed?), the different types of pension benefits available and even the different types of investment choices that the deed allows you to make.

The problem lies in the fact that just because the legislation has changed; this does not mean that your trust deed (and in most cases it won't) will allow you to take advantage of this. Under an old deed you cannot start a common pension such as a "Transition to Retirement Income Stream" (ie accessing some of your super whilst you are still working providing you have reached your preservation age).

Clauses in old deeds that intend to proactively say something like "if the legislation changes then this over-writes what is in this deed" will not stand up in court, if recent cases are anything to go on.

That's the problem with trust deeds, though, you go to an accountant or a planner to set up your fund; yet the most qualified person to review the Trust Deed is a lawyer that specialises in them.

 

[village idiot]

yes indeed they are very 'one size fits all' which is clearly their intention, so they can supply or sell the same deed to everyone without having to modify them.

they seem to achieve this by allowing pretty much everything they can think of, which is a pretty long list, and then allowing anything they havent thought of but that the act allows and the trustee thinks fit etc etc

when you think of it why would you want anything else for your own fund?

included in the items they have thought of; certainly includes allowing binding and non binding death benefit nominations, every known pension type, borrowing, and a comprehensive list of investment options

there are a few bits of wording though that i feel is not quite precise enough

I imagine the deeds sold by cleardocs etc would want to have a similarly wide scope precisely so the purchaser didnt have to go amending it too much

 

[Ves]

I imagine the deeds sold by cleardocs etc would want to have a similarly wide scope precisely so the purchaser didnt have to go amending it too much

Pretty much spot on, I believe. Again, it depends on what you want to achieve. I think the most important thing is having an up-to-date deed, I would recommend a deed of variation once every three years to keep up with legislation.

 

[jorgon]

I am hoping jorgon might explain the need for different deeds (between corporate and human trustees)?

Hi, sorry I don't think I subscribed to the thread, so I haven't been getting notifications of the numerous posts.

Some of the differences are actual legal requirements, and others are things which the auditor is obliged to check from the trust deed in the annual audit (that is, if the auditor follows the ATO guidance).

Some of the main differences are:-

1. Superannuation law requires that a fund which has a corporate trustee should state that the trustee must be a corporate trustee.
2. Superannuation law requires that a fund with a human trustee states that the sole purpose of the fund is the provision of old age pensions. A fund with a corporate trustee does not have to state this, and can therefore be more relaxed with its stated purpose.
3. Since a minor child is not permitted to be a member of a fund with a corporate trustee, carefully drafted procedures in the human deed relating to child members ought to be omitted.
4. The deed for the corporate trustee should tie in nicely with the constitution of the corporate trustee, which ought to be written properly to deal with membership, directorship and voting. For example those who hold powers of attorney only, should not by that fact alone be able to become directors of the corporate trustee and this will be reflected in the constitution and not controverted in the trust deed.
5. To satisfy the audit, those who must be trustees of the fund or in the case of a corporate trustee, those who must be directors of the fund, should be stated in the deed. This part of the deed is therefore quite different.
6. The human trust deed needs to provide for cessation of trusteeship, and replacement of a trustee either by someone of sound mind or by a legal personal representative. In the case of a corporate trustee these provisions will be in the constitution of the company if the provisions of the Corporations Act cannot be relied on (and they should not be in the trust deed).
7. The human trust deed must provide for timely transfer of assets by the outgoing trustee to the incoming trustee (and make this obligatory). It is also necessary to provide for the timing of the trustee's release from obligations, and any indemnities from the fund. These difficulties do not arise in the deed for the corporate trustee.
8. Disagreements between the trustees would be dealt with in the human trust deed but in the case of a corporate trustee would be dealt with in the company constitution if necessary.
9. Superannuation law requires that the trustee (and the directors of the corporate trustee) are fully aware of their duties. Preferably these should be set out in the trust deed and of course they are stated differently in the two types of deed.
10. The trust deed will clearly state the obligations of the trustees towards the fund. In the case of the corporate trustee these are of course different, because of the additional layer of the company, so that the directors duties would also be stated.
11. There will be different provisions to cover the extent to which the trustees (or in the case of the corporate trustee, the directors) can use the fund to pay their expenses. And also the extent to which they have powers to use the fund to cover all the fund's own outgoings. And also different provisions covering how they should carry out their respective powers and duties. The wording is of course different in each case.
12. The way the deed may be amended will be different in each case. It is important for the trust deed to provide for amendment, whilst restricting amendment in those circumstances when an existing or incoming member might try to take advantage of a member who is deceased or lacking in capacity in later life.
13. The declaration of trust itself will be phrased differently between the two deeds.
14. The signature box and the method of attestation (how it is witnessed) will be very different.

For the above reasons, I would not be happy with the "generic" type of SMSF trust deed which might be drafted with a view to being used for both human and corporate trustee. Nor do I think it is a good idea to try to amend a trust deed from one type into another.

 

[Julia]

Update from my earlier indecision about how to go about changing to corporate trustee.

I obtained quotes from three online providers for the documents to effect the change.
In all cases, they would email a link to standard generic document which I'd have to download, print, and return by post with the original Trust Deed.

Also would have to send certified ID copies.

I just wasn't comfortable going with the generic approach in case there was some particular circumstance which would not be covered and maybe not discovered until it came to administering the estate.

So, with some local enquiry, I found a legal firm who quoted to do everything, including providing five certified copies of all the documentation for under $1000.

I have then had to download the appropriate form from the ATO (about 20 pages), complete this, and post it.
Definitely not worth paying an accountant around $600 to do this part!

I'm really glad I decided to go the individual way as the solicitor made a couple of important points re specific wording. I'm reassured that my particular circumstances are known and addressed.

Jorgon, re your suggestion that two separate Deeds are required, I think this is probably adequately addressed if the Deed of Amendment and a couple of other separate documents are prepared appropriately.

I'm not finished yet, as I have to supply all the financial institutions and the broker with certified copies of everything, plus complete their forms re the change.

All up, it has been a much more complicated exercise than I'd imagined and I wish I'd gone for the Corporate Trustee structure in the first place.

Hope this helps anyone else considering setting up or changing SMSF.

 

[village idiot]

Hi jorgon, thanks for your comprehensive reply

the generic trust deeds I looked at wouldnt even pass the first test ie

1. Superannuation law requires that a fund which has a corporate trustee should state that the trustee must be a corporate trustee.

so how do these pass audits then? are there lots of SMSF out there which may one day be picked up and disqualified?

 

[jorgon]

so how do these pass audits then? are there lots of SMSF out there which may one day be picked up and disqualified?

Well, the auditor's responsibility is to carry out (1) a financial audit, and (2) a compliance audit.

The nature of the compliance audit is described in the ATO document (NAT 11375) which states (my emphasis):-

"COMPLIANCE AUDIT
"You are required to conduct a compliance audit in accordance with the standards on assurance engagements (ASAEs) and to express an opinion as to whether the SMSF has complied with the SIS Act and the SIS Regulations.
"As an approved auditor, you must possess the required capabilities and competencies to conduct a compliance audit of an SMSF, including full knowledge of the relevant legislation, the application of it and compliance with it by SMSFs.
"Based on your audit, you must be satisfied that the trustees of the fund have met the requirements set out in the super laws.
"When doing the compliance audit, you should .. express your professional opinion about the subject matter information in the approved form – that is, the Self-managed superannuation fund independent auditors report (NAT 11466). You must use this form."

ATO form NAT 11466 gives a list of the section numbers and regulations which the auditor must report on if there has been a failure to comply.

The section which requires that a fund which has a corporate trustee should state that the trustee must be a corporate trustee is section 19(3) of the Superannuation Industry (Supervision) Act 1993. This is not on the list in NAT 11466.

Therefore, unless the auditor interpreted strictly the requirement of the compliance audit as set out above, a trust deed which did not comply with section 19(3) would not necessarily be reported on by the auditor.

This is worrying, because section 19(1) of the Act states:-
"A regulated superannuation fund is a superannuation fund in respect of which subsections (2) to (4) have been complied with."

Therefore a breach of section 19(3) would appear to render the fund non-complying.

 

[village idiot]

lol now I am going to argue law semantics with a lawyer.

this is sect 19(3) of SISA;

(3) Either of the following must apply:

(a) the trustee of the fund must be a constitutional corporation pursuant to a requirement contained in the governing rules;

(b) the governing rules must provide that the sole or primary purpose of the fund is the provision of old-age pensions.

now I presume that the assertion "requires that a fund which has a corporate trustee should state that the trustee must be a corporate trustee" is drawn from this part of (a); "pursuant to a requirement contained in the governing rules" ?

but sect 19(3) is an either/or clause; if (b) is true then there is no need for (a) to be true or even be considered ?

so if (b) is true, ie the governing rules provide that the sole or primary purpose of the fund is the provision of old-age pensions......

then the trustee could be a corporation without the requirement of being explicitly stated that it must be a corporation

 

[jorgon]

Yes, you are correct - it can be one or the other.
However this ties up with my No. 2, because you would not wish to say in a trust deed with a corporate trustee (unless you were obliged to) that that the sole or primary purpose of the fund is the provision of old-age pensions. This circulates around the debate as to whether such words prohibit the fund from providing a benefit by way of a lump sum (as opposed to a pension).
Provision of benefit by way of a lump sum is in fact permitted by the statute on the happening of the relevant events. However the trust deed should avoid introducing such a prohibition. Therefore if these words are included, their possible effect would need to be clarified in other parts of the deed to make it clear the trustees may provide a benefit by way of a lump sum upon the happening of the relevant events.

 

[Julia]

Couldn't the Deed simply say that the purpose of the Fund is to provide retirement benefits to the members? Thus not specifying whether "pension" or lump sum?

 

[pixel]

Couldn't the Deed simply say that the purpose of the Fund is to provide retirement benefits to the members? Thus not specifying whether "pension" or lump sum?

You can also reiterate that phrase when you formulate/ update your investment strategy.
The recent updates coming from SIS and ATO are stressing the need for such Plans; I therefore think it's a good idea to use their preferred terminology. Easy enough to do.

 

[village idiot]

the way that section 19 is drafted is pretty odd.

I mean if the lawmakers decide that it is a good idea that the governing rules must provide that the sole or primary purpose of the fund is the provision of old-age pensions. , where is the logic in letting one type of trustee do something different but not the other?

And what has an administrative detail (type of trustee) got to do with the main purpose of the fund anyway?

This circulates around the debate as to whether such words prohibit the fund from providing a benefit by way of a lump sum (as opposed to a pension).

yes, if those words really do prohibit lump sums, then that would be an onerous restriction that would make using a corp trustee a no brainer.
Yet if it is accepted as you allude to that this can be got round by clarified in other parts of the deed to make it clear the trustees may provide a benefit by way of a lump sum upon the happening of the relevant events then that simple clarification effectively negates the restriction.
On other hand if there is doubt that such a clarification overrides the required statement that primary purpose of the fund is the provision of old-age pensions, then back to square one (and a corp trustee)

 

[nulla nulla]

the way that section 19 is drafted is pretty odd.

I mean if the lawmakers decide that it is a good idea that the governing rules must provide that the sole or primary purpose of the fund is the provision of old-age pensions. , where is the logic in letting one type of trustee do something different but not the other?

And what has an administrative detail (type of trustee) got to do with the main purpose of the fund anyway?

yes, if those words really do prohibit lump sums, then that would be an onerous restriction that would make using a corp trustee a no brainer.
Yet if it is accepted as you allude to that this can be got round by clarified in other parts of the deed to make it clear the trustees may provide a benefit by way of a lump sum upon the happening of the relevant events then that simple clarification effectively negates the restriction.
On other hand if there is doubt that such a clarification overrides the required statement that primary purpose of the fund is the provision of old-age pensions, then back to square one (and a corp trustee)

Maybe the use of the words "primary purpose" do not exclude secondary purposes where some-one electsd to include them.

 

[jorgon]

The Superannuation Industry (Supervision) Act 1993 as a federal statute may only regulate matters as provided by the Australian Constitution. The Federal Parliament has power to make laws with respect to trading or financial corporations (the "corporations power") and to make laws with respect to old-age pensions (the "pensions power"). This is under sections 51(xx) and 51(xxiii) of the Constitution respectively.
The statutory law governing a superannuation fund with a corporate trustee is made under the corporate power. The statutory law governing a superannuation fund with human trustees is made under the pensions power.
So the wording of section 19(3) is designed to ensure that the superannuation fund states in its governing rules (the trust deed) whether it is established with a corporate trustee (and so be regulated under the corporations power) or to provide old-age pensions (and so be regulated under the pensions power).
If the governing rules of the superannuation fund states neither of these two things, then the fund cannot come within the regime established by the Superannuation Industry (Supervision) Act 1993. This is because the Federal Parliament would have no power to make a law regulating such a fund.
This explains the strange wording of section 19(3).

 

[village idiot]

thanks for the explanation jorgon. interesting.


now another question; if I was interested in buying my docs from you (corp trustee package), how could I make sure the deed suited my circumstances in advance? Specifically I would like to check out the clauses dealing with powers to 'invest' ie what instruments are allowed, granting security, borrowing and using a LPR as director. would any changes be allowed either by myself or you?

respond by pm if you prefer. thanks.

 

[jorgon]

I'm very flexible about these things.
I appreciate that people who run their own SMSFs may wish to question the reasoning behind parts of the deed and the other documents in the package, which I am only too happy to explain.
I am also happy to deal with any queries a client might have about the step-by-step guide and the mechanics of how to get their SMSF up and running.
As for amendments, in the usual case the deeds and documents should cover all requirements. If a client wishes to make changes to a document that I have drafted this will not need my consent. But I am happy to discuss such changes and to check them for legality and for consistency with other provisions in the documents.
This is within reason, of course. I have been in practice a long time and I am confident that clients will not take advantage of this. If I need to charge a fee in order to consider more substantial changes I will let the client know beforehand and obtain their agreement (as indeed I am obliged to do by my professional rules).

 

[village idiot]

ok Jeremy, on the strength of your reply that you are willing to help tweak the document by review and advice on any changes I might need to suggest, within reason of course, then book me down for an SMSF corporate trustee package.

have sent email direct