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Dot your i’s and cross your t’s - Get your SMSF documentation right

Feb 19, 2019, 09:29 AM

By Graeme Colley

Graeme Colley SuperConcepts SMSF expert

In running a DIY fund, you’d want to make sure the right amount of super is paid to the right person at the right time, wouldn’t you?

Therefore, it’s important to ensure that the fund’s documents are completed correctly and retained. This includes making sure any document does what you think it should and, if required, is witnessed by someone who’s not party to it. Otherwise, things can go awry.

The importance of your trust deed

As a starting point, let’s look at the fund’s trust deed and governing rules which are its centrepiece and define how the fund is to operate.

A valid trust deed is required to be executed by the parties to it and usually includes the person who establishes the trust (the settlor) and the corporate or individual trustees. The trust deed will be signed (executed) by the parties to the deed and independently witnessed and dated.

The main issues we see with some trust deeds is that the trustee has not signed the deed or signatures have not been witnessed. Where there’s an error it’s usually necessary to seek legal advice, and which may result in a deed of correction. Getting it right in the first place would have saved the additional cost and effort in correcting the issue with yet another legal document.

Appointing, replacing or dismissing trustees

Usually, the fund’s trust deed governs the appointment, replacement or dismissal of a trustee. In carrying out this activity one of the most common oversights is a failure to consult the trust deed.

In many trust deeds, the appointment, dismissal or replacement of a trustee may require the consent of the members, for example, via a member resolution. However, we often see trustees making these decisions unilaterally, and then if the matter’s contested, ensuing fund decisions could be deemed invalid.

Some trust deeds require the completion of membership forms as a prerequisite for membership. Often the member fails to complete the form, leaving their membership at risk if ever contested.

Death benefit nominations

Death benefit nominations are an ongoing issue and are frequently put to the courts and tribunals to adjudicate. For example, they may have not been correctly signed, witnessed, or the deceased’s wishes may be unclear or in dispute.

Under the legislation, a deceased person can have their super paid to a dependant including their spouse or child, irrespective of the level of dependency. It’s also possible to have a death benefit paid to the deceased’s legal personal representative, for distribution as part of the estate.

A death benefit nomination should be clear in its instructions. There’ve been many court cases resulting from a lack of clarity, and where the trustee was required to fall back on the other provisions of the deed to pay the death benefit.

And don’t forget these other documents…

Here are some other areas that require careful and correct documentation.

  • Fund investments
  • Fund accounts
  • Tax returns
  • Election to claim personal tax deductions
  • Formally enabling an SMSF to receive an employer’s compulsory contributions

The number of signatories to a document can be important as well. This can depend on whether the trustee consists of individuals or is a company. Each Australian state has its own requirements.

If you’re a corporate trustee, here’s what to consider

If the trustee is a company, a document can be executed as it determines, including giving someone else the authority to sign the document on behalf of the company. Execution of the document will usually be supported by the company’s constitution or as a resolution of the company’s board.

The Corporations legislation has provisions which allows organisations dealing with companies to rely on certain assumptions that the document is executed correctly. It is assumed that a document has been executed correctly:

  • Without a company seal where it is signed by:
  1. Two company directors, or
  2. A company director and company secretary, or
  3. A sole director of the company who is also the company secretary.
  • With a company seal being affixed to the document in the presence of the following persons who have signed the document as witnesses:
  1. Two company directors, or
  2. A director and a company secretary, or
  3. A sole director of the company who is also the company secretary, or
  4. A company with a sole director who is not a company secretary and another person can act on behalf of the company if authorised by a resolution of the company.

If you’re an individual trustee, here’s what to consider

Each state has its own rules for individuals to sign legal documents, but as a rule a witness to a trustee’s signature should be:

  • At least 18 years old
  • Know the person whose signature they are witnessing
  • Be satisfied the person is who they say they are
  • Witnessing the signature only, and otherwise not a party to the document

Electronic signatures

If you think the rules about the signatures for individual or directors are difficult, then including an electronic signature on the document can be more complicated. Despite the huge increase in the electronic transmission of documents, placing an electronic signature on some documents is not possible. The reason is that if it is a formal legal document that requires witnessing, then a handwritten signature is necessary.

In closing

One thing’s for certain: if you’re not sure then get advice on what’s required under the fund’s trust deed, as it has an essential role to play. When it comes to executing a document for or on behalf of the fund, know what’s required if the fund has a corporate or individual trustee. Otherwise it could end up with a totally unacceptable result.