SMSF trustees who have lost the original deed for their fund should establish a new fund and roll assets into the new entity, according to an SMSF legal expert, who said this was the safest way to deal with the issue without seeking a court order.
DBA Lawyers special counsel Bryce Figot said SMSF trustees who have lost the original deed could seek a court order, but would need to convince the court to a reasonable standard that any executed deeds actually existed to constitute the trust and there must also be evidence of the terms of the trust deed.
This evidence could include an operating bank account, which would have been established using the deed, and continuous administration of the fund, but even these may not be sufficient for a court, with Figot adding there were no certainties when going to court.
As such, he recommended the best alternative is to establish a new SMSF, which is also preferable to merging with another fund.
“If there are any deficiencies in a document trail, if there are concerns about documents not being properly made or you don’t have the original document or it was not properly executed, or those things cause concerns, you have to get the trail perfect,” he said.
“Often the preferred solution is to establish a new SMSF and roll over the assets. As a lawyer, that gives you the strongest, most secure, most certain option.
“However, watch out for CGT (capital gains tax)‐related income tax liabilities, losing any losses in the old SMSF, stamp duty, the loss of social security benefits and that section 66 [of the Superannuation Industry (Supervision) (SIS) Act] might prevent the transfer unless the assets are cash, listed securities or business real property. Also, this strategy will probably be too late to enact once a member has died.”
According to Figot a fund merger may work where property is involved, but it is an untested area of law even though there is an exception under law.
“My concern about a merger is that conceptually the fund with the deficiency is still [in existence so] this does not address the fundamental problem of killing off that fund so that in the future there is no need to deal with the document deficiencies,” he said.
Trustees who did not want to establish a new fund could also carry out a deed of variation with as many parties as possible, Figot added, noting this was also a popular strategy but could easily be challenged in court.''