Trust deeds are like constitutions for super funds, laying out the reason for the fund’s existence and the manner in which it operates. It establishes the objective the fund seeks to fulfil such as providing retirement income for its members, who can be a member of the fund and how assets will be paid to retired members.
A SMSF must be operated in accordance with the trust deed and the requirements it lays out. Trust deeds are legally binding documents but can, and should, be updated regularly to reflect changes in your needs and the law.
How do you write a trust deed?
Because a trust deed is a complex and legally binding document, it should only be prepared by people with expertise in superannuation practices and legislation. This could be a lawyer who practices superannuation law, or a company that specialises in self managed super.
Once a new trust deed is written and executed, the attached SMSF is officially established. It must be signed and dated by all trustees of the fund and executed in accordance with the state or territory laws it operates in, as well as the relevant federal laws.
Update your trust deed regularly
It’s important to update your fund’s trust deed periodically, which is typically done through a deed of variation. If the legislation concerning super is updated, or if the members want to try a new investment strategy, you may find that it conflicts with the existing trust deed. By updating the deed, you ensure that your SMSF both complies with the law and caters to the needs of the members. It is usually recommended to seek an independent expert to update the trust deed, similar to creating it in the first place, due to the complexity involved. This can cost $500 or more, but there are companies that offer regular updates at a lower price.
The trust deed will also need to be provided whenever you have your SMSF audited. A SMSF auditor needs to ensure that the fund is operating not only in compliance with the law, but also with the deed. Failing to operate in accordance with the deed can lead to some pretty hefty penalties, including fines, being barred from being a trustee or even criminal charges.
A trust deed is important, but also complex. Make sure you seek qualified and independent assistance in creating, reviewing and updating your deed, not only to keep your SMSF out of trouble, but also to make sure it is working as effectively as possible.