Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 139

Importance of updating your SMSF Trust Deed

The Trust Deed for an SMSF is the Fund’s most important document. It forms the core component of the Fund’s governing rules. Whilst legislation typically stipulates what trustees must not do, the governing rules of a Fund specify what trustees are allowed to do.

For example, the appointment of an Enduring Power of Attorney to stand in the shoes of an incapacitated trustee must be expressly permitted in the Fund’s governing rules. Merely having an Enduring Power of Attorney does not of itself mean that an Enduring Power of Attorney is appointed upon a trustee losing mental capacity. The Fund’s governing rules must provide the mechanism for the removal of a trustee that has lost mental capacity.

Therefore, if the Fund’s governing rules do not expressly allow for this to occur, the appointment of the incapacitated trustee can have serious ramifications for the Fund’s qualification as a complying superannuation fund. Superannuation regulations do not state a Legal Personal Representative (LPR) is automatically appointed if a trustee loses mental capacity. If not correctly documented in the Trust Deed, the Fund may not be able to be restructured to remove the incapacitated trustee. This may render the Fund inoperative, as all trustees must actively make decisions regarding the Fund (including the removal of a trustee).

The requirement for updating your SMSF Trust Deed can come from many sources:

Changes in legislation

Some of the more prominent recent changes in superannuation legislation are:

  • Refund of excess concessional contributions
  • Limited Recourse Borrowing Arrangements
  • Remuneration of trustees
  • Covenants to be included in the Fund’s governing rules
  • Requirement to report assets at market value
  • Requirement for the trustees to consider insurance for members.

Court cases and decisions

Recent court cases such as Ioppolo & Hesford (as executors of the estate of the late Francesca Conti) v Conti & Anor [2013] WASC 389 and Wooster v Morris [2013] VSC 594 outline the importance of sound estate planning practices, such as Binding Death Benefit Nominations (BDBN). An SMSF member is not automatically granted a BDBN; the Fund’s governing rules must allow for such direction to the trustee (this may include a non-lapsing BDBN). With regard to death benefit payments, the Fund’s governing rules are crucial in determining who will run the Fund once a member has passed away.

Change of member circumstances

Changes in personal circumstances may also warrant a review of the Trust Deed to see if it is up-to-date. For example, a member may look to go from accumulation phase to Transition to Retirement (TTR) pension phase. If the Fund’s Trust Deed is an older deed, it may only allow for a pension to commence once the member has retired. Again, there is nothing in the legislation that states a particular Fund can commence a TTR for a member.

Relying on deeming clauses in the Trust Deed will not provide the ability for the Fund to pay such a pension because the legislation only defines a TTR and outlines the payment rules for such an income stream, but there is no mention of a Fund’s ability to pay such a pension. Unless the Fund’s governing rules expressly allow for a TTR, then it is likely the Fund may breach its governing rules if it pays a TTR income stream.

Requirements by third parties

It may be prudent (or a requirement) to update the Trust Deed if the trustees are looking to undertake a specific investment. For example, a bank may require a Deed to expressly allow for Limited Recourse Borrowing Arrangements before it provides finance to the SMSF, or it may be necessary to upgrade the Fund’s governing rules to undertake a derivatives transaction.

Don’t rely on an old Trust Deed

Without an up-to-date Trust Deed, the trustee may not be able to operate in a way that it wishes without being in breach of trust. Beneficiaries may also take action against trustees for losses or damage (for example, if a particular strategy needs to be unwound). Beneficiaries are not limited to seeking recompense from trustees under this section, but also third parties such as accountants and financial planners.

How often should your SMSF Trust Deed be upgraded? It is prudent to upgrade the Deed regularly by using an online updating service. This type of proactive service ensures a Fund’s governing rules are current, as well as providing accountants and advisers with comfort that all their clients’ Deeds are the same, making it much easier to administer the funds and advise trustees. SMSF auditors are also required by the Audit Standards to determine whether the trustees are acting in accordance with the Fund’s governing rules.

 

Nicholas Ali is Head of Technical Services & Education at SuperIQ and SuperConcepts. This article is for educational purposes only and does not address the needs of any individual. It is believed to be accurate at the time of writing but rules or interpretations may change.

For more articles and papers from SuperConcepts, a sponsor of Firstlinks, please click here.

 

RELATED ARTICLES

7 vital steps to compliance for your SMSF

Every SMSF trustee should have an Enduring Power of Attorney

Why SMSFs should have a corporate trustee

banner

Most viewed in recent weeks

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Latest Updates

Superannuation

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Superannuation

Less than 1% of wealthy families will struggle to pay super tax: study

An ANU study has found that families with at least one super balance over $3 million have average wealth exceeding $19 million - suggesting most are well placed to absorb taxes on unrealised capital gains.   

Superannuation

Are SMSFs getting too much of a free ride?

SMSFs have managed to match, or even outperform, larger super funds despite adopting more conservative investment strategies. This looks at how they've done it - and the potential policy implications.  

Property

A developer's take on Australia's housing issues

Stockland’s development chief discusses supply constraints, government initiatives and the impact of Japanese-owned homebuilders on the industry. He also talks of green shoots in a troubled property market.

Economy

Lessons from 100 years of growing US debt

As the US debt ceiling looms, the usual warnings about a potential crash in bond and equity markets have started to appear. Investors can take confidence from history but should keep an eye on two main indicators.

Investment strategies

Investors might be paying too much for familiarity

US mega-cap tech stocks have dominated recent returns - but is familiarity distorting judgement? Like the Monty Hall problem, investing success often comes from switching when it feels hardest to do so.

Latest from Morningstar

A winning investment strategy sitting right under your nose

How does a strategy built around systematically buying-and-holding a basket of the market's biggest losers perform? It turns out pretty well, so why don't more investors do it?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.