Question 4 – Have you created the trust and trust deed?

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An SMSF is a ‘trust’.  A trust deed establishes the fund, and sets out the rules for its establishment and operation.  The trust deed’s clauses cover the following areas:

  • fund objectives;
  • who can be a member;
  • how to appoint and remove trustees;
  • when benefits can be paid as a lump sum or pension; and
  • procedures for winding up the fund.

Your SMSF deed is important because it contains the rules for managing your fund and therefore your retirement savings. As you must generally abide by the rules in the deed, we suggest that you read it prior to purchase. To this end, we recommend you to seek the services of another lawyer if you believe the document is too complex or difficult to read. You can request a sample deed from a range of suppliers to consider which best suits your needs – they are all different, and can be tailored. An SMSF Specialist Advisor (SSA™) can assist you with this review.

 

Reason that $10 is required to establish the fund

A trust cannot be created unless there are assets. Furthermore, your SMSF’s entitlement to an ABN (see Question 6 – Have you registered your SMSF?) is dependent on your SMSF having assets, meaning that your SMSF cannot be registered unless it holds at least some assets.

The ATO will accept that an initial nominal amount (e.g., $10) can be used to establish the SMSF. Once an ABN has been issued for the fund, deposit the nominal amount into the SMSF’s bank account and allocate it to the member as a contribution. A slightly higher amount may be advisable depending on the State in which your deed is established. We recommend that you speak an SMSF Specialist Advisor (SSA™) or lawyer supplying you with a deed to confirm this amount.

If a fund cannot accept a contribution for a member (e.g., they are aged 65 or more and do not meet the work test), this ATO administrative concession will override the superannuation rules, and allow the initial nominal contribution to be accepted by your SMSF.

 

Example – Establishing a fund

Saul, aged 67, is retired and is in the process of establishing an SMSF to roll over his superannuation savings of $800,000 from a large retail fund. The retail fund is unable to process the rollover until Saul’s SMSF has received an ABN and the fund appears on Super Fund Lookup as a regulated fund.

As Saul is aged 65 or more, and does not meet the work test, his fund cannot accept a contribution on his behalf. However, he is required to make a contribution so his fund has ‘assets’ and can register for an ABN with the ATO.

The ATO’s administrative concession means that Saul can attach $10 to the deed, and treat this as a contribution to the fund. This concession means that Saul’s SMSF will not breach the contribution rules.

Once his fund receives an ABN, and opens a bank account, Saul will deposit the $10 received into the fund’s bank account.

 

Checklist: Establishing a new deed

Complete the following:

Step Description

Step 1

Speak to an SMSF professional (e.g., an SSA™) or appropriately
qualified person (e.g., a lawyer) about organising a deed.

Step 2

Ask for a copy of the deed to have a read through
and make sure you are happy with it.

Step 3

Arrange for the deed to be prepared.

Step 4

Check the deed has been completed correctly.
Have all trustees sign and date the deed.

Step 5

Store a signed copy of the deed in a safe place, and attached the initial
settlement amount(e.g., $10) to the deed until the fund is registered
with the ATO and a bank account opened.

Step 6

Once your SMSF is registered, and a bank account is opened,
deposit the nominal amount into the fund’s bank account.

Step 7

Regularly review and update the deed. It is a good idea to have your deed
checked again before you pay a benefit to ensure it reflects the current law,
and best practice.