SMSF Deeds and SMSF Trustee Services

Our SMSF deed services are available separately from our other SMSF services if required.

It is advisable to consider updating existing SMSF Deeds every now and then and necessary when there has been a major legislative change or a member wishes to carry out some action or achieve some result that they are unable to with their current SMSF Deed. Do not believe that because the legislation gives SMSFs the power to carry out certain activities that they are automatically able to do so. Your SMSF Deed conditions over rule the legislation. Also if the SMSF Deed expressly states that you must carry out an act that will breach the legislation then you are compelled to do so. This is why you must be familiar with your SMSF Deed and prepared to update it from time to time. Naturally, if you are establishing a new SMSF, it makes sense to start with a quality SMSF Deed.

Tranzact Financial Services Limited was incorporated in 1999 under another name and established an administration business for superannuation master trusts and managed investment accounts. In July 2003 Grosvenor Financial Services Group, now the largest independent provider of adviser services in New Zealand, entered into a joint venture with, and took a 60% interest in, the company. This combined the superannuation expertise of Tranzact with the proven technology, research and administration platforms of Grosvenor. The managing director of Tranzact, Mr Allan Yeo, has been appointed similarly to Tranzact Super's board.

The Deed is the foundation of the SMSF. All activities of the fund must first be checked against the Deed wording to see if they are allowable then, if allowable under the SMSF Deed, the SIS Act and the Tax Act to confirm that they do not breach the legislation. Lastly it is important that the SMSF documentation is also in order. With our SMSF Deed the documentation is regarded as part of the Governing Rules as set down by the Deed.

Most SMSF deed wordings are confusing. When you consider that it is imperative for the trustees to ensure that all transactions are in line with the Trust Deed you would expect that a Trust Deed would be simple and easy to understand. For this reason our SMSF deed is written in "simple English" and contains frequent examples of the relevance of particular clauses. If you are seeking a new SMSF deed it makes sense to have the best but be careful - there are SMSF trustee/director/member relationships that must be satisfied. The choice of the most appropriate SMSF corporate trustee is also an important consideration.

There are two types of SMSF trust deed, "band-aid" and "strategic". Most SMSF deeds are "band-aid" deeds and contain little more than copies of pieces of legislation. Our SMSF deed is "strategic". It has been written to provide solutions. Examples are:

SMSF Voting Power
Most SMSF deeds provide a one vote, one value rule which allows SMSF members with small balances to exert considerable control over SMSF members with larger balances. Our SMSF deed provides that, where a vote is deadlocked, a further vote can be taken based on the SMSF member account balances. As a SMSF corporate trustee will overrule this provision we also provide a purpose built SMSF corporate trustee to cater for this.

SMSF Pension Accounts becoming Taxable
Most SMSF deeds provide that a SMSF member ceases to be so on death. While this may seem obvious it also means that, where a SMSF member was receiving a pension, the pension account now reverts to an accumulation account making all unrealised capital gains taxable on asset sales. This can be disastrous if the benefits are to be paid out as lump sums rather than as a continuation of the pension. Our SMSF deed states that the definition of a SMSF member for pension purposes includes their legal personal representative. This is for the purpose of maintaining the tax free pension status of the SMSF member account for sufficient time after death for any necessary asset sales to occur in the tax free pension environment. It should be noted that this provision has not been tested at law.

SMSF Life Insurance Proceeds
Most SMSF deeds require life insurance proceeds to be credited to the deceased SMSF member's account. This prevents the use of reserves to fund an anti detriment payment (mentioned below). Our SMSF deed gives the trustee discretion to distribute the proceeds as appropriate which could include to other SMSF members' accounts or reserves.

SMSF Reserves
Many SMSF deeds do not have the power to create reserves. These should be a part of most self managed super funds particularly those that are eligible to recoup all contributions tax paid by a deceased member under the anti-detriment provisions mentioned above.

SMSF Product Disclosure Statement
Many SMSF Deeds do not include a custom Product Disclosure Statement. Ours does. This enables the SMSF trustee to ensure that all SMSF members are informed but, as importantly, it allows SMSF advisers to satisfy their disclosure obligations to the SMSF trustees/members.

Work Test
Many SMSF Deeds still require a member to be working a minimum of 10 hours per week after age 65 to retain an accumulation account in the SMSF. Our SMSF Deed caters for the latest legislative condition that a SMSF member may remain in the accumulation stage indefinitely.

SMSF Membership Eligibility
Many SMSF Deeds require a member to be gainfully employed to join the fund. Our SMSF Deed allows anyone who can legally become a member to do so. This includes the unemployed, the retired and children.

SMSF Contribution Eligibility
Many SMSF Deeds state that only a SMSF member or an employer of the SMSF member may make contributions. Our Deed allows anyone who can legally contribute to do so including a spouse, child or the government (co-contribution).

DIY Instalment Warrants
Our SMSF deed allows your Fund to borrow under the instalment warrant provisions. Further our SMSF deed allows you to use whatever reasonable loan to valuation ratio you decide as this limit is not imposed by the various State trustee investment legislation under our SMSF Deed. In addition our Deed allows SMSF assets to be held by a nominee. This is vital to the instalment warrant arrangement.

Old SMSF Deeds
SMSF Deeds issued prior to 23 December 1999 may contain SMSF in-house asset provisions which are incorrect as a major legislative change occurred on this date. All SMSF deeds prior to this date should be upgraded as numerous legislative changes have occurred since then.

SMSF Pensions
Many SMSF Deeds do not allow the full array of pensions to be paid. Our SMSF Deed allows any type of pension legally able to be commenced or retained including non-commutable & commutable allocated and account based pensions, complying and non-complying defined benefit pensions, market linked pensions and non-commutable death benefit children's allocated or account based pensions.

SMSF Binding Death Benefit Nominations
Surprisingly many SMSF Deeds only provide the ability for members to make a discretionary beneficiary nomination. Our SMSF Deed allows a member to make a binding death benefit nomination. Not only that but, if you wish, your SMSF binding death benefit nomination may be non-lapsing. That means that only the person who has made the nomination can change it and it won't expire after three years.

Superannuation Will
Our SMSF Deed empowers you to be quite specific in the estate planning provisions you make as distinct from a binding death benefit nomination which is more general in its provisions.

Wind Up
Many SMSF Deeds have either inadequate or no provisions for winding up the fund. Our SMSF Deed lays down detailed conditions in this regard.

The items above should be in a SMSF deed. There are also items that should not be in a SMSF deed. The most common is a prescriptive way of handling SMSF investment accounting which entails opening a separate SMSF investment reserve from which returns are distributed at year end. In practical terms this is impossible to do except with a manual system. Electronic systems handle these distributions differently. They are accurate and immediate. Using a modern accounting system is therefore a breach of this type of SMSF trust deed. Amazingly this condition is in many SMSF deeds.

This is just a sample of the many differences that exist between SMSF Deeds. We would be pleased to assist you with your particular requirements.

On a cautionary note you should be wary of SMSF deed services that offer ongoing SMSF deed updates as a matter of course. Not only does this commit you to an ongoing cost without a guarantee of any real benefit but, more importantly, an ongoing update program for a second rate SMSF deed merely provides you with an updated second rate SMSF deed.

Tranzact Super produces the Strategist SMSF Deed, the wording of which we actively influence, under license. This SMSF deed has been specifically crafted as a strategic deed. Our Product Disclosure Statement (PDS), which is additional to the one contained in the Deed, is based on the use of this SMSF Deed. It is not mandatory for a client of our comprehensive SMSF compliance and administration service to use our SMSF Deed but elements of our PDS may not be applicable to those trustees that do not. Our SMSF deed services are available independently from our other SMSF services if required.

Comments or queries on this article should be made to the author Tranzact Super.