Old SMSF trust deeds may be putting your clients at risk of administrative penalties, or worse, placing their SMSF death benefits in jeopardy, says Topdocs Director Michael Spakman.
Topdocs is one of Australia’s leading providers of quality SMSF, company, trust and estate planning documentation to accountants, financial advisers, lawyers, SMSF administrators and the general public.
“With the introduction of the Simpler Super legislation in 2007, a significant number of deeds were updated by advisers, but most have not been updated since. Whilst there hasn’t been a single piece of legislative change to equal the 2007 legislation, a raft of important legislative and regulator changes have occurred during this period which have now culminated in the need to update.”
Mr Spakman cites amendments to the limited recourse borrowing arrangement legislation, new limitations on the types of insurance cover available to members, the ability to refund excess contributions and changes to concessional and non-concessional contribution caps as major examples.
“Out of date provisions guiding the actions of trustees on any of these matters could result in significantly adverse effects on members’ benefits and with the recent introduction of administrative fines for SMSF trustees, potential monetary penalties,” he says.
In addition to these changes, evolving SMSF estate planning strategies have heightened the risk of members with older deeds not having their death benefits paid as they intended.
“One of the major provisions not covered in older trust deeds are non-lapsing Binding Death Benefit Nominations (BDBNs), meaning that many SMSF members will have inadvertently created three-year lapsing nominations. The implication of this is that many SMSF members may already have an invalid nomination or may die without a valid nomination if three years have passed since it was last updated.
“In this instance, the remaining trustees will have the power to distribute the member’s death benefits, and the manner in which they do so, may be inconsistent with the member’s intentions.”
The role of a deceased SMSF member’s legal personal representative (LPR) has also changed over time, with the acknowledgement that their role in protecting a member’s death benefits may be moot due to time taken to receive probate.
“Because an LPR cannot be appointed until probate is granted, a time delay of three months or more is not uncommon, during which time the remaining trustees could have distributed the death benefits in whatever manner they choose.
“While many older deeds continue to use the LPR as a safeguard for a deceased member, new alternatives such as a ‘death benefit guardian’* better protect the interests of SMSF members,” says Mr Spakman.
While ensuring that SMSF deeds are up to date is critical, the process for updating deeds en masse can be enormously time-consuming, with many advisers putting off the process due to the time involved in ordering a large number of documents simultaneously.
To overcome this, Topdocs has developed unique integrations with leading software providers, Class Super and BGL, to make the process of updating clients’ deeds quick and easy.
“These integrations enable advisers to update their clients’ SMSF deeds using the data already stored in their accounting system, meaning they don’t have to complete order forms, substantially reducing the time involved.
“Breaking down the ‘time burden’ of the deed update process via these integrations has seen a substantial increase in adviser willingness to update their clients’ trust deeds,” he says.
*A provision unique to Topdocs’ deeds, a death benefit guardian is a person appointed during the member’s lifetime, who steps in immediately to protect the member’s interests on their death, eliminating the timing issue associated with LPRs.
