As strong as the weakest link: SMSF Document Chains
Estate planning issues can arise where there is a chain of superannuation trust deeds and one or more of the varying deeds is invalid or a deed in the chain cannot be located. The latter can occur if the self-managed superannuation fund (SMSF) trustee has a chain of trust deeds but when the new version of the trust deed is created, the provisions and clauses which allow for updating the deed are not followed correctly. This means that the new deed is invalid, and potentially leaves any estate planning relying on those changes ineffective.
The importance of checking the SMSF document chain
For many people, the assets in their SMSF represent a large percentage of the overall value of their estate. It follows that dealing with the SMSF in someone’s estate plan is often the most important part of their estate planning strategy.
This is why it is so critical to review the whole chain of documents for the SMSF, not just the latest deed. Because it is possible to update the trust deed for a SMSF by simply replacing the terms with a new deed, often people will simply rely on the latest deed of variation. Whilst the latest deed may validly represent the terms of the SMSF, it is important to check the previous documents to ensure that there are no issues in the document chain and that the latest document is, in fact, valid.
What documents need to be reviewed?
It is critical to review each of the following documents, particularly if there could be any controversy or challenges in relation to the SMSF:
- the trust deed establishing the SMSF;
- any subsequent deeds of variations;
- any change of trustee documentation;
- details of the directors and shareholders of the corporate trustee (if applicable); and
- the Constitution or Memorandum and Articles of Association for the trustee company (if applicable).
A review of all documents should be conducted by working through the documents chronologically and checking:
- if there are any restrictions in the variation power;
- whether the deed of variation has been executed properly and by the correct parties; and
- that any changes of trustee have been validly carried out.
What are common issues?
Some of the common issues that can arise in the documentation review are:
- the trust deed or a varying deed was not varied in accordance with the variation power;
- a person or company that was required to consent to a variation or change of trustee has not done so (this could be the Principal Employer or Founder);
- documents in the chain are missing; or
- a document was not correctly signed or was not dated.
What are the implications of a gap in the chain?
If there is an issue with the historical documents for the SMSF, this could have far reaching implications for a person’s estate plan, as it could be argued that the later deed or deeds are not valid.
The main goal when putting in place a non-lapsing binding death benefit nomination is to ensure certainty about the payment of a death benefit on a person’s death. Therefore, if a deed enabling a binding death benefit nomination is not valid, this invalidity may extend to the nomination.
Challenges to binding death benefit nominations and superannuation benefits have increased significantly over the past few decades, particularly as this has become an increasingly large asset. A gap in the chain of documentation for the SMSF or invalid deed could be just the ammunition a disgruntled beneficiary needs to challenge a binding death benefit nomination.
In addition to the estate planning issues that may arise, there could also be compliance issues for the SMSF if the documentation is not in order.
What if a document is missing?
If a deed for a SMSF is lost, this raises many issues for the Trustee and every effort should be made to find any missing deed. Enquiries should be made with all accountants, auditors, financial planners, lawyers and bankers who have had dealings with the SMSF in case they might have the original or a copy of the missing deed.
If only a copy of the deed can be found, an application can be made to the Court for an order to administer the SMSF according to the copy of the deed. However, this can be a time-consuming, expensive and ultimately uncertain exercise. The Court’s typical position is that where an original written document is not produced and secondary evidence is relied upon, there must be “clear and convincing proof not only of the existence, but also of the relevant contents, of the writing”.
This raises the question: what exactly is the standard of proof required to be adequately clear and convincing?
The Court has a hierarchy of what it will consider appropriate proof.
In one case, an unexecuted copy of a trust deed was tendered along with evidence that the original documentation did exist and had been seen but that, despite a diligent search, it could not now be found. This evidence was brought by an accountant who was recognised as a superannuation expert. The judge found that “those originals did exist and that there are deeds in that form governing the fund”. As such, instances like this are at the top of the hierarchy.
In another case, the plaintiff was not a professional, had last seen the lost deed about 20 years ago and only remembered the “gist” of the deed. Unsurprisingly, the court rejected the tendered document. Instances like this are at the bottom of the hierarchy.
It therefore follows that unless there is extremely convincing evidence as to the exact contents of the trust deed, the Court may well reject the tendered document. However, even if the Court can be convinced, this is not the end of the story. Further issues may arise for various reasons, for example parties may then seek to rely upon what is probably an unstamped document, and state and territory duty legislation might prevent the admission of such a document until the stamping issue has been rectified.
Control is key
Whether there are issues with the chain of documents for the SMSF or not, and regardless of whether there are binding nominations in place, it is vital to ensure that the appropriate person takes control of the SMSF after your death.
If you are concerned about your SMSF document chain or are considering your SMSF as part of your estate planning, the experienced team at Bell Legal Group can discuss your options and advise and assist you with this process.
For further information and assistance on any estate planning or estate administration matter, please contact a member of our experienced Wills, Trusts and Estate Planning Team at Bell Legal Group on (07) 5597 3366 or email firstname.lastname@example.org.
This article has been adapted from the paper “Breaks in the SMSF Documentation Chain” by Carly Fradgley.
 Re Bowmil Pty Ltd  NSWSC 161.
 Mack v Lenton (1993) 32 NSWLR 259, 260.
If you have any queries regarding this article or need legal assistance please call us on 07 5597 3366 or fill out the ‘Contact Us‘ form at the bottom of the page.
Please note that this article has been prepared by Josephine Vernon, Solicitor in our Wills, Trusts and Estates at Bell Legal Group, for information purposes only. It is not legal advice nor should it be relied upon as such.