A self-managed superannuation fund's (SMSF) trustee, members, broader beneficiaries, tax agent, auditor and bank all rely on the most recent SMSF deed to determine what rules the SMSF is run under. Unfortunately, losing the SMSF deed is quite common. Doing the right thing afterwards often proves difficult.
What's the importance of the trust deed?
An SMSF is a type of trust that, like all trusts, is "run" by its trustee. Unlike the SMSF compliance laws, which SMSFs have no control over, the SMSF trustee can adopt its own trust deed. Each deed constitutes the SMSF's internal rules. SMSFs with a lost trust deed will therefore run into many administrative problems as well as possibly serious legal challenges, especially where there is a dispute about benefit payments, or how the SMSF is being run.
The Tax Office regulates and supervises the super and tax aspects of the fund. But the ATO does not supervise the trust law aspects of the SMSF's operation. Rather, the courts have jurisdiction over trust law matters.
While courts do not technically regulate trusts, they can enforce trust law obligations in the deed. This typically occurs when beneficiaries of the SMSF bring a legal case against the trustee (for example, relating to death benefit disputes). When this occurs, the courts have repeatedly reminded trustees that one of their fundamental duties is to obey the rules of that trust laid out in the deed.
So, what can be done if the SMSF's deed is lost?
The first step is to exhaust every effort to find the original executed deed, or failing that, at least an unexecuted copy of the deed or a template of the governing rules provided by the deed supplier. Searches should include contacting accountants, auditors, financial planners and financial institutions; and contacting the deed supplier to determine whether they retained the original trust deed, or even an unexecuted copy.
If a template or an unexecuted copy of the trust deed is found, the SMSF trustee is in a better position than if the trust deed is completely lost.
In this case, the SMSF trustee may then be able to execute documents confirming that the template or unexecuted copy reflects the current rules.
Or, to offer even more certainty, the trustee can seek an order from the relevant supreme court that the template or unexecuted copy is to be taken as the current rules. However, this solution is likely to be time consuming and expensive. Further, there can be no guarantees about what orders are actually handed down by the supreme court.
Variation to the rules
If approaching the supreme court is not possible or not desirable, SMSF trustees might choose to arrange for a deed of variation to be executed with as many beneficiaries as can be practically included as parties to the deed.
This would include anyone who could theoretically one day benefit from the SMSF (not just current members). Other relevant parties would include other persons and companies who were involved with the fund's document trail, such as the principal, founder, or principal employer. This approach can provide an imperfect but practical and cost-effective method for moving forward, especially where future disputes about the fund are unlikely.
One of the weaknesses of this method is that it is not possible to know whether the current rules for varying the deed have been complied with, since those rules are lost.
Involving other parties could present its own problems for trustees and members who would rather not approach their children, grandchildren, previous employers, etc for this purpose.
The rationale for including as many relevant parties and beneficiaries as possible is that it narrows the scope for such parties to mount a legal challenge to the SMSF trustee based on issues arising from the lost deed. The intention is that beneficiaries who have signed the deed of variation would be legally prevented from later claiming the variation was not valid.
It is clear that there is no perfect solution to a lost SMSF trust deed.
Indeed the moral of the tale is that it is much better to keep the original in a safe place – and retain other copies as well.