In a large number of cases, the process of setting up an SMSF does not include a Product Disclosure Agreement (PDS). Allow me to reflect on this statement. A public offer fund (or a retail offer fund) comes with a PDS which pre-stipulates the rules that the members of the fund will need to follow. This same can hardly be followed by SMSF members because in effect, it would mean a member providing himself with a document that showcases how to run his own fund.
Trust deed is a crucial document
We can easily discern that the trust deed, then, becomes really important for an SMSF. If you choose to act out of accordance with the trust deed, you will be ignoring the compliance requirements for SMSF and end up incurring lofty fines or other penalties.
Which legal firm have you chosen?
Getting a trust deed prepared is the key and like all things important, it also asks you of some of your precious time. Ideally, it should be prepared by a legal set-up that you trust. If, on the other hand, you are sourcing it through your financial planner, the minimum you can do is ask them directly (and without mincing words) about the legal team which worked on the deed.
Trust deed should include every aspect
A well-prepared deed is all-encompassing in nature. It takes care of your entire investment strategy (any possible strategy; even those aspects which you are not likely to use ever). As a couple of instances, 1) it should say everything that needs to be said about SMSF-enabled property investment. 2) It must talk about payment of income streams in retirement.
Faulty trust deeds in the past
In the past, the trust deeds have been open to scrutiny. There were faulty deeds which put in writing that firms with individual trustees could not borrow lump sum in retirement even when their need was of the most urgent nature. Though this was applied, it was not a thumb rule to be stuck to.
I think the most crucial aspect of any deed is that it should be current. Put another way, it must pay heed to the present-day dynamics of superannuation law. As an instance, if in the near future, SMSF borrowings is banned, it may be a redundant topic for the trust deeds to talk about arm’s length transactions for residential investments. Not hard to guess, I believe!
