Over the last few weeks I’ve explained the history of catch-all and general compliance clauses in super fund trust deeds. You can read these articles here, here and here.
As I pointed out, in the past catch-all and general compliance clauses were extremely useful but you want to be very careful using them these days because they can be extremely dangerous.
In simple terms your trust deed has to give you the necessary power to perform any action involved in the running of your fund. In most cases catch-all and general compliance clauses aren’t good enough. You can’t assume that if your trust deed is silent on a particular issue then you can complete a proposed transaction.
The power to do anything needs to be specifically found in that trust deed.
How often should your deed be updated?
A key issue therefore is how often your deed needs to be updated so that you can continue to operate your fund in accordance with the law. Perhaps this comes down to the pace of change in the relevant legislation (for example super, tax, social security, trust and property laws), developments by the SMSF industry, Court cases and so on.
My guess is that most of you would think 2012 wasn’t a particularly busy time from a super and tax law change perspective. You might also believe that none of these changes made in 2012 would force you to update your SMSF’s trust deed. I wish I had a dollar for every time someone said to me over the years, “Mate, there haven’t been many important changes over the last few years.”
How many changes throughout a year would it take before you decided you needed to consider changing your trust deed?
And what type of changes would be important? Are you like most of the SMSF sector, solely focused on Commonwealth super and tax changes? And then only those changes that you decide relate specifically to your circumstances?
Would you look further afield and examine some Court or Tribunal cases as well as changes made by State or Territory Parliaments? And what about Tax Office documents such as Rulings, Determinations or Interpretative Decisions?
Would 25 changes – or about one per fortnight – from all these areas make you consider if your trust deed needed updating? Maybe one change every couple of weeks isn’t enough for you.
If one change per fortnight doesn’t cause you to act then would one change per week force you to act?
I ask these questions because over the last 12 months there have been more than 100 changes in all the above areas. That is, two changes per week.
Not included here are anything to do with some reforms spinning around your SMSF such as My Super – which only impacts large super funds – and the Future of Financial Advice reforms. It also doesn’t include any changes to State property laws.
This is an incredible number of changes. How are you meant to sift through all these changes and decide which demands a change to your trust deed and which doesn’t? Trust deeds are legal documents and to amend one you need legal training.
I don’t think the pace of change is going to slow down even if the Coalition wins the election and one of their stated goals is to make fewer changes to super.
Get your trust deed updated
In my experience many people in the SMSF industry think updating your trust deed every three to five years makes sense.
But is this a logical way of ensuring your fund’s trust deed gives you the necessary powers to operate your fund? I don’t think so.
Some super fund trustees don’t want to change their trust deed because of the cost involved. It’s a good idea to sensibly keep our expenditure under control but sometimes we can be ‘penny wise but pound foolish’. As I have discussed above, with the pace of change, a regular review and update is essential.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
