Buying a house with friends or family

This article was originally published in the LawCentral Bulletin 390 on 7th November 2011 and is republished with permission of the author, Brett Davies.

Hi Brett. I’m a recent university graduate. I’ve been lucky enough to land a graduate job earning a decent wage. The problem is, with rents so high and house prices even worse I can’t seem to get a foothold in the market. I have a bunch of friends that are in a similar boat. Can we all chip in to buy a house without getting into legal fights later on?

You are not alone. My graduate lawyers constantly ask for a pay rise so they can buy a house. However, it seems with the cost of renting and house prices – some people feel trapped.

Option 1: Buy a house with friends agreement

The ‘buy a house with friends agreement’ is a great way to get a foothold in the property market. You and your Gen-Y mates can pool your resources to buy a house together.

Sounds simple. But, why do you need it when you can just do that without an agreement?

The Buy A House With Friends Agreement clearly sets out the nature of the relationship between all your friends. We call the relationship a syndicate. It just sounds better than calling it a collective of mates.

But, everyone gets along fine. Why do we need legal documents?

Those are famous last words of many people who do business with friends. Just because everyone gets along well now, doesn’t mean that you always will. The buy a house with friends agreement defines:

  1. Each party’s investment contribution;
  2. What the property is that the syndicate owns;
  3. How the property is owned;
  4. Each party’s share of the capital and income of the venture;
  5. Whether the parties can borrow against the property;
  6. How the parties can end the agreement;
  7. How the parties can transfer their share of the syndicate;
  8. Whether the parties can force the sale of the property; and
  9. How the parties can exit the syndicate.

By establishing all of the above details at the beginning – everyone knows where they stand.

We even include a mutual promise that each party is to promptly meet their individual finance obligations. What does that mean? Put simply, everyone agrees to pay their mortgage repayments on time.

Although my litigators hate me for this it saves you more on legal fees to have the agreement in place now. We see disputes over property going to court and in the end both parties spend their share of the property in legal fees. It is such a waste of your time and effort.

Option 2: Investing through a Unit Trust

A unit trust is another great way for a group of people to pool their resources to invest somewhere. In this case, invest in property. The key players in a unit trust are:

  • Trustee; and
  • Unit Holders.

The unit trust is a ‘relationship’ between the trustee and the unit holders whereby the trustee owns property for the sole benefit of the unit holders. The trustee can either be each unit holder (acting in their personal capacity) jointly or you can set up a corporate trustee.

The unit trust offers greater flexibility for the unit holders. The unit holders are able to freely transfer their unit holdings amongst each other and subject to the terms of the trust, can transfer their units to third parties too. The units are much the same as shares in a company in that respect.

Are you thinking ‘if this all goes well we might buy another place later’?

If your answer to the above question is yes, then a unit trust may be the way to go for you. The unit trust offers the flexibility of acquiring new trust assets without requiring a new agreement. That is because the unit trust lives for at least 80 years.

Once you have set up the structure, it is practically with you for life.

Who do you appoint as the trustee?

It really depends on the number of people you intend to involve in the whole process. Remember, every person that is named as a trustee of the unit trust is required to be named as the registered owner of the property. That can be very cumbersome if you pool together 10 friends. You even need to change the title registration every time a unit holder sells out or a new one comes in. After all, there is no need for a former unit holder to be a trustee.

Another option is to create a corporate trustee. It is a relatively simple process. Just build a company on Law Central and you are on your way. Now the company is shown as the registered owner of the property. Better yet, whenever unit holders change – you don’t need to change the trustee.

Who controls the corporate trustee?

In the normal course, you appoint at least one person to be the director. You also issue shares to each of the unit holders in the same proportions as their unit holding. That way each unit holder has an appropriate degree of influence over the corporate trustee.

Then, when unit holders change or their unit holding changes, they simply transfer the appropriate number of shares in the trustee company to ensure everything remains kosher.

I hope you and your friends manage to make a solid start in the property market. If you are unsure about what is right for you, speak to your accountant and adviser first to get the financial advice you need. Then call me and one of my team can set you in the right structure.

Famous Will Catastrophes

This article was originally published in the LawCentral Bulletin 362 on 19th April 2011 and is republished with permission of the author, Brett Davies.

You’d be surprised at how many wealthy people die without a Will. Or don’t update their Will to reflect their changing circumstances. Some of the best examples of leaving things until it’s too late are:

  1. Howard Hughes the eccentric billionaire who founded PanAmerican Airlines. Died in 1976 at the age of 70. His Will was discovered at the headquarters of the Mormon Church in Salt Lake City. However, the Will was proved a forgery and his estate was divided among his 22 cousins.
  2. Pablo Picasso died in 1973 at the age of 91. He left a fortune in assets including artwork, properties, cash,gold and bonds. Because Picasso didn’t make a Will, it took 6 years to settle his estate at a cost of US$30m. His assets were eventually divided up among six heirs.
  3. Stieg Larsson who wrote, amongst other titles, The Girl with the Dragon Tattoo, died in 2004. He too died without a Will.Swedish law dictated his estate be divided between his father and brother. His life long partner of 32 years, Eva Gabrielsson received nothing. The family did grant her ownership of the couple’s apartment.
  4. Jimi Hendrix died in 1970. He didn’t leave a Will regarding the distribution of his estate. The battle over his estate raged on for more than 30 years for one simple reason. His estate continued to generate money long after his death.
  5. Heath Ledger died in 2008. He had a Will which left everything to his parents. The problem is, since he made that Will in 2003 – Heath had a child, Matilda. By not updating his Will to accommodate his new circumstances, Matilda got nothing in the Will. Fortunately,Heath’s parents made sure she was looked after, but without the aid of any tax protection like a 3G Testamentary Trust.

Don’t leave it to the Courts todecide the fate of your assets. Even worse, if you don’t have a Will and there is no next of kin – the Government takes it all as the default. You’ve alreadypaid enough tax in your lifetime, so why give the Government more when you die?

(Ed – And let’s not forget the estate disaster that followed Peter Brock’s death.)

If you don’t have a Will yet at the very least get a decent and cost effective one from LawCentral.

Writing your own Will is dangerous

This article is republished courtesy of the original author, Brett Davies Lawyers. Please contact them directly for any questions and advice you may need on this topic.


My New Year Resolution was to write my own Will.

I thought it would be easy. However, I have come to realise that Will writing is far more complicated than I first thought. I asked my financial adviser for some help. She almost spat her extra-skinny, organic, soy, decaf-latte (obviously her New Year resolution was to be more health conscious) at me in shock. Apparently, my idea was ‘ridiculous’.

I am not perturbed. I’d like some hints. What are some of the essentials of a good Will?


Congratulations on making a Will a priority in 2011. However, your suggestion to write your own Will is giving me heart palpitations. If I had an extra-skinny, organic, soy, decaf-latte, I would be doing the same thing as your adviser.
Many people underestimate the complexity of their affairs. Even if you just have your family home and a car, you still need a Will that is drafted clearly and correctly. Add in complexities such as superannuation, investment properties, blended families, ex-spouses – and the importance of a good Will increases exponentially. Otherwise, you may as well name the tax-man and your ex-husband’s new mistress as your main beneficiaries.

Wills are complicated legal documents which require a high level of precision and thought. Only instruct a specialist lawyer to prepare your Will for you. Please do not attempt to write it yourself. Although it may appear simple and clear to you, I guarantee your beneficiaries and the Probate Court will see it differently. Using your “simple self-drafted” Will, your beneficiaries may be tied up for years and spend all of their inheritance on legal fees to figure out who gets your assets. Unfortunately, I have seen this happen.

At Civic Legal, we have solicitors that only practice in tax, superannuation and estate planning. Our Wills are 3 Generation Testamentary Trust Wills – these protect your assets from vultures, protect your beneficiaries from squandering their inheritance and they also save tax.

Here is a short list of questions to ask yourself before meeting with your lawyer to prepare your Will:

  1. Who should be the Executor?
    The best Executors are those people getting the proceeds of the Estate. This usually means the spouse in the first instance and then all the children once Mum and Dad both die.What if the children don’t get along? We hold firm our view that even where this is the case, the best Executors are still all the children. This is because the Executors hold a subservient position. Their prime duty is to pamper and obey the whims of the beneficiaries.It is often forgotten that the naming of a person as an Executor is simply an invitation. It is not a mandatory appointment. If a person who is named as an Executor is unable or unwilling to act they can renounce (give up) the position.The Executor clause in your Will could be improved:

    i.          if it does not appoint the surviving spouse at first instance

    ii.          it only appoints one child as Executor once Mum and Dad die – it is appropriate to appoint all of the children as Executors

  2. What should be done with the home?
    There are two ways of allowing someone to live in your home at death without giving them ownership of the property: Life Estates and Rights to Reside.Life Estates and Rights to Reside have adverse tax consequences – potentially triggering Capital Gains Tax. They generally lose the principal place of residence CGT exemption.
  3. Superannuation as an ‘Estate Asset’ Superannuation does not automatically form part of the estate. It often does not go into the Will.Want to know how to deal with Superannuation and get it to non-dependants tax-free?
  4. Why is tax planning essential at death?
    Capital Gains Tax, Income tax and transfer duty are the silent insipid de-facto death duties.Your Will can benefit from a Three Generation Testamentary Trust:

    • A Testamentary Trust is designed to minimize tax. That is, it is designed to allow the beneficiaries to wash out the de facto death duties
    • One of the advantages of a Testamentary Trust is that the tax payable on the income earned on the estate or Capital Gains Tax payable is paid to family members on low tax rates.
    • Each Primary Beneficiary controls their own Trust by becoming the “trustee” of their own Trust. For tax purposes, they control the assets. They do not own the assets.
    • The Primary Beneficiary is often the person in complete control of the Estate assets in their own Testamentary Trust.
  5. Protecting beneficiaries?
    Simple Wills do not protect any beneficiaries who are bankrupt. This results in the beneficiary’s inheritance passing straight out of their hands to the Trustee in Bankruptcy. Effectively the beneficiary’s inheritance is lost.A 3 Generation Testamentary Trust Will from Civic Legal gets around this unfair situation by including Protective Trusts.A Protective Trust keeps the wealth in the family. A Protective Trust is an instruction to the Executor to not make a gift to a beneficiary if certain criteria are true for that beneficiary – for example the beneficiary is bankrupt, lacks mental capacity or is under age.

    The Protective Trust is there to protect the beneficiary and not deny them of their inheritance. Once the beneficiary is out of bankruptcy, mentally sound and has attained the age of majority they are entitled to their inheritance.

  6. Who might challenge my Will?
    Where there’s a Will – there’s someone who can challenge it. There is a strong blood line relationship which defines who can make an application to the Supreme Court to challenge a Will. The class of people who can challenge your Will include, your:

    • parents
    • spouses – including de factos, mistresses and gay partners
    • biological and adopted children (but not step-children)
    • biological and adopted grandchildren
    • anyone that you financially maintain (but not in all States).

    To reduce the chance of anyone challenging the Will, we always recommend a Considered Person clause. A Considered Person clause names those people who you don’t wish to make provision beyond what is stated in the Will. There’s no need to air out your dirty laundry. When you die, your Will becomes a public document. Best not to give Ms Busybody next door any ammunition. A Considered Person clause does not prohibit a person challenging the Will, however it makes it harder for them to be successful.

    Read a previous article on who can challenge a Will.

Ready to instruct a lawyer to prepare your Will?

I am happy to discuss your Estate Planning with you. Contact me at (08) 9325 7999

Who can challenge a Will?

This article is republished courtesy of the original author, Brett Davies Lawyers. Please contact them directly for any questions and advice you may need on this topic.

Who can challenge a Will?

It doesn’t matter who you are – all Wills can be challenged by certain people. Potential challengers can only come from 5 types of relationships:

  1. Your parents
  2. Your spouse (including de-facto partners)
  3. Your children (adopted children but not children born from sperm or egg donation)
  4. Your grandchildren
  5. Anyone that you are ‘maintaining’ (but not in all States).

At Brett Davies Lawyers, we encourage you to expressly name any unintended beneficiaries (for example, a de-facto girlfriend) in your Will. This shows the Court that you have not merely ‘forgotten’ that person. This is a ‘considered person clause’. This does not stop them from challenging, but makes it harder for them to be successful.

I’ve heard stories where sneaky people stop challengers by giving them $1 dollar in the Will. Can I do this too?

Sadly, you can’t stop anyone from challenging your Will. I’ve heard these stories too – but they are only successful in overseas jurisdictions (such as the USA). In Australia, if the challenger falls within any of the five categories above, then they have a right to challenge.

Nothing you can do can take away this right. For example, you can’t say:

  • “I give my de-facto $1 and she cannot challenge my Will”.
  • “I give $20,000 to my partner, but if she challenges my Will then the gift is void.” (known as the Lang Hancock clause because he tried to use this in his Will – obviously without success).
  • “I give the whole of my estate to my partner, but if she remarries then this gift is void”
  • “I give the whole of my estate to my partner on the basis that she remains Anglican and attends church every Sunday”.

All of these are void for public policy reasons. You can’t use your Will to force someone to do or not do something. This is called ‘ruling from the grave’. The Supreme Court doesn’t like you trying to oust their jurisdiction like that.

What is the silver lining? Just because someone can challenge your Will, doesn’t mean that they are successful.

Matt’s Tip:

If you are concerned about people who may challenge your Will then ensure you speak with a specialist estate planning lawyer about drafting a Will for you.

SMSF: corporate or human trustee?

This article is reprinted with permission of the article author LawCentral. The views expressed are entirely their own and within their expertise. Read the article or watch the video here.

Question: My accountant suggested a corporate trustee for my Self Managed Super Fund. I already have a few companies – I know they are more expensive to operate than having individual trustees. Is he only trying to generate more fees from me? I’m not made of money you know.

Answer [by LawCentral]

It is a vexed question whether SMSFs should have corporate trustees. Everyone in the Superannuation game has a different opinion. I change my opinion daily.

But no two SMSFs are the same. So a blanket ‘yes’ or ‘no’ won’t cut it. Your adviser and accountant looks at the following things to formulate their opinion:

  • What is the relationship between the members? Will they change often?
  • What are the type and value of the SMSF assets?
  • Where are the SMSF assets located? Other states or countries?
  • How pedantic are you?
  • Do you need extra asset protection? Is there risk that the SMSF can go insolvent?
  • Are the members happy to pay higher maintenance costs for a company?
  • Contemplating Limited Recourse Borrowing Arrangements (formerly known as instalment warrants)?
  • Do you own more than one property in one state paying land tax?

Corporate Trustees add expense and complication. Your Accountant is best to do the cost/benefit analysis. If your accountant suggests a corporate trustee, they have already answered all of these questions.

Who can be trustee of a SMSF?

  • Humans as Trustees

If you want a human Trustee, all members of the SMSF must also be Trustees. You can’t pick and choose between members – it’s all or nothing. (There are minor exemptions for children and members living overseas.)

  • A company as Trustee (Corporate Trustee)

If you have a Corporate Trustee, all members must be the Directors of the Company. All Directors must be members of the Fund. The Corporate Trustee carries out its role as a Trustee of your superannuation fund just the same as you as individuals do.

If you are the only member of your SMSF, special rules apply. (See the Platinum member only section below.)

When should I have humans as trustees?

  • You want less hassle and the lowest administrative cost

It costs nothing (apart from food and shelter) to keep humans as trustees. There are no annual reports to ASIC or dates to lodge with ASIC.

  • You are unlikely to change the SMSF membership

It can become a nightmare to change the members of your SMSF with human trustees. Firstly, you need to admit (or exit) that person as a member (you have to do this anyway). Then, title to the SMSF assets is transferred to or from the member. This is because SMSF assets are held in the name of the trustees, not in the SMSF itself. For example, the four of you as members hold the SMSF land in your names. That is the law. You die; the property must now be transferred into different names. If you had a company, no transfer is required.

When should I have a corporate trustee?

  • You change the members of your SMSF often

If your members change often, you simply remove (or appoint) them as members and as directors of the corporate trustee. Although the directors change, the actual corporate trustee does not. As the SMSF assets are owned in the name of the corporate trustee, there is no need to jig about with the land titles office.

  • You are secretive and own lots of assets

Don’t want anyone to know what assets you own? A Corporate Trustee holds the assets in the name of the company. If someone does a land titles search using your personal name, they won’t find the real estate held in your SMSF.

  • You want to borrow in your SMSF

If you want to take advantage of Limited Recourse Borrowing Arrangements to borrow to fund SMSF assets, beware. Many lenders only agree to lend you money if you have a corporate trustee.

  • You need to amp up your asset protection

Assets in your SMSF are meant to be conservative – they are there for your retirement – not for speculation. Risky or not, I have had clients that have ended up with negative assets in their SMSF. Insolvency often leads to the SMSF Trustees going down with the sinking ship. Better to lose just a company.

  • You pay land tax

In most states, you pay a higher marginal rate of land tax the more land you have. Therefore, if you and your spouse already have a rental property then owning more land (as Trustee of the SMSF) increases the rate of land tax you pay. At Brett Davies Lawyers, we can usually transfer the land out of your name into the name of your new company – for no transfer (stamp) duty and no Capital Gains Tax.

Ok fine. I think I need a corporate trustee. Can I use one of my other companies as trustee?

Yes you can. But just because you can do something, doesn’t mean you should. Using a company for multiple purposes is fraught with risk. People who are pedantic and never make mistakes should only do it. I am pedantic and never make mistakes; however, I still use one company solely for my SMSF.

Why do you need a separate company? SMSFs are delicate. SMSF auditors are even more so. There can’t be any overlap between SMSF funds and other company funds. Weekly, I get calls from accountants where their clients accidentally used the wrong cheque book (or clicked the wrong internet banking account). Sure it is an accident, but the SIS Acts say this is incredibly illegal. No one can guarantee that they never make mistakes. Best to bite the bullet and set up a separate corporate trustee.

What are the ASIC fees for my corporate trustee company?

It is cheaper to run a company that acts as the trustee of your SMSF. Why? Because ASIC allows you to register this company as a ‘Special Purpose Company’. Your special treatment means that the annual ASIC review fee is only $41 per year (rather than the usual company review fee of $218). (The initial ASIC registration fee is still $412.)

You can build a Special Purpose Superannuation Trustee Company at LawCentral (it takes 8 minutes).

How do I update my SMSF to include a Corporate Trustee?

To change the trustee of your Self Managed Superannuation Fund (SMSF) to a Corporate Trustee, you do two things (in this order):

  1. Set up a company. Use the LawCentral Build a Company document to do this. After you build the company, you register it at ASIC. ASIC charges $412.
  2. Update your SMSF Deed by using the SMSF – Deed Update document available at LawCentral. Select: change your trustee into a Corporate Trustee. Insert: new company name, ACN and address

(Original publication date 18th October 2010 in LawCentral Bulletin 338.)

Should you use a Corporate Trustee to run your Self Managed Super Fund?

This article is reprinted with permission of the author LawCentral.

As with most things whether you use a corporate trustee to run your self managed superannuation fund entirely depends on your situation. Your accountant is the best person to ask.

A Corporate Trustee is good if you fall into the following categories:

You are secretive and own lots of assets

Don’t want anyone to know what assets you own? A Corporate Trustee holds the assets in the name of the company. If someone does a land titles search using your name, they won’t find the real estate held in your SMSF.

The members of your SMSF change often

Your members are the Trustees. So when a member changes, so do the Trustees. In this instance, you have to go back to the local titles office and transfer the property into the names of the new Trustees. There are generally no state duty or Capital Gains Tax issues to do this. But there are administrative costs to transfer.

You love asset protection strategies

Assets in your SMSF are meant to be conservative – they are there for your retirement – not for speculation.  Risky or not, I have had clients that have ended up with negative assets in their SMSF. Insolvency ensures that the Trustees of the SMSF can go down with the sinking ship.

You pay land tax

In most States you pay a higher rate of land tax the more land you have. Therefore, if you and your wife already have a rental property then owning more land (as Trustee of the SMSF) increases the rate of land tax you pay. You can transfer the land out of your name into the name of your new company – for no transfer duty and no Capital Gains Tax. (Get the help of a tax lawyer.)

Corporate Trustees add expense and complication. Your Accountant is best to do the costs/benefit analysis.

For the definitive arguments for and against a Corporate Trustee visit LawCentral and subscribe for Platinum membership.

Update your Will when your cheating husband is given marching orders

Question: My client is distraught. After finding out that her husband’s personal assistant was taking the ‘personal’ part of the job literally, they are now divorced. I am a Western Australian accountant that wants to protect my already fragile client. I hear that divorce invalidates a Will. Should she make a new Will? What happens if she fails to make a new Will? Read the article for the answer…

This article is reproduced courtesy of the author LawCentral. Many of their articles are direct answers of a reader’s question – as below.

Question: My client is distraught. After finding out that her husband’s personal assistant was taking the ‘personal’ part of the job literally, they are now divorced. I am a Western Australian accountant that wants to protect my already fragile client. I hear that divorce invalidates a Will. Should she make a new Will? What happens if she fails to make a new Will?

Answer: Your client should make a Will as soon as possible.

The laws are different in Western Australia compared to the rest of Australia. In the bad old days, only marriage revoked a Will – divorce didn’t. This meant that there were unfair situations where a divorced spouse benefited from their ex-partner’s Will. All States deal with this. However, Western Australia does it differently. Under the Wills Amendment Act 2008 (WA), divorces, like marriages revoke a Will. Revocation means that the Will is now totally void. I suppose this is good because ex-spouses no longer benefit from their separated spouses – but other States do it better (see below).

What happens if your client doesn’t make a new Will?

If your client doesn’t make a new Will, then she dies without a Will – intestate. Trust me when I say that you don’t want to die intestate. It means that your estate is then administered according to the relevant state’s Administration Act. Relatives are beneficiaries in the proportions as set out by the act. This happens even if it is not what you wanted.

Worse, the evil Public Trustee is the default administrator. The Public Trustee automatically takes a percentage of your assets on your death. The greater your assets, the more you pay – even if there is no additional work. It is expensive and usually a waste of time. If you trust the government more than your family, then sure, let the Public Trustee take over. Otherwise, just appoint the beneficiaries as the executors.

What happens outside of WA?

In all other States and Territories, the Will remains valid after divorce. The only change is that the ugly spouse is removed. If your ex was an executor then they lose that job. If they were a beneficiary, the gift fails. Everything else in your Will remains the same. The integrity of the rest of the Will is intact and the document still stands. This means that the estate is distributed according to your wishes (but excluding your ex-spouse).

What is wrong with dying intestate?

You ask what is wrong with dying without a Will. Dying intestate has tax problems. You are taxed long after you die. Although death taxes were abolished by 1981, your estate is reduced by the three defacto death taxes – Income Tax, Capital Gains Tax and Stamp Duty. Failure to plan allows these hungry taxes to eat away at your estate’s value. LawCentral Platinum members can safeguard themselves by learning about:

  • Three Generation Testamentary Trusts;
  • Post Testamentary Trusts (Poor Man Trusts); and
  • Superannuation Testamentary Trust

You can sign up for Platinum membership of LawCentral from the link below:

LawCentral Online Australian Legal Doc Shop

Comparison of business structures

When you decide to establish a business it is first essential that you choose to operate within the appropriate business structure. Should you choose a company, discretionary trust (family trust), unit trust or a combination?

The answer will have a significant impact on the tax you pay and the protection of your assets.

For an overview of the two major structures watch this brief video by lawyer Brett Davies.

Also read the full article on LawCentral in issue 262 of their regular Bulletin (dated 4th May 2009). You will need to pay a small fee to become a platinum subscriber to read the full article. But that’s a small price to pay compared to the tax you could save from what you learn.

Checklist to ensure your SMSF deed is up to date

This article is reproduced courtesy of the author LawCentral.

If you have a self managed superannuation fund (SMSF) it is essential that you as trustee regularly review the deed to ensure it is up to date. One benefit is that an up to date deed will give you access to the latest strategies as they become available.

When was your SMSF trust deed drafted? Review the list below produced by LawCentral to discover if and why you need to review your trust deed as soon as possible.

SMSF pre 2009

Since 2009, SMSF Deeds need updating because of:

  • Compliant with Auditing and Assurance Standards Board (AUASB) Guidance Statement GS 009.
  • Allowing you to borrow money on a limited recourse basis (Instalment Warrants) under section 67(4A) SIS Act. Sadly, many regimented deeds (even some new ones we have seen lately) actually go out of their way to stop borrowing and charging of SMSF assets. (See the ATO’s view here).
  • Allowing death benefit nominations to be typed into the trust deed so that they don’t expiry every 3 years.
  • Don’t restrict membership – there should be no restriction in your deed as to who can become a member – the rules change and you don’t want to miss out.
  • Don’t restrict contributions – old regimented deeds prohibit many classes of people from contributing to your Super. What a waste of time to put in such restrictions. The government, fearful of people running out of superannuation and collapse of the age care pension, are increasing the classes of contributors.

SMSF pre 1 July 2007

Since 1st July 2007, SMSF Deeds need updating because of:

  • “Plan to Simplify and Streamline Superannuation”, from 1 July 2007, once you turn 60 you can take out your Super tax-free, unless you Deed states otherwise (2007).
  • New strategies allow you to turn off and then turn on pensions. Some can be converted to accumulation mode. However, some trust deeds require rollovers be paid to other funds, even if you want to continue to hold them in your fund.
  • Account-Based Pensions and Transition to Retirement Incomer Streams were released in April 2007. Your deed must allow for their payment. Sadly, many older deeds don’t allow for them.
  • Compulsory cashing rules are mostly abolished, except for death. However, many deeds still enforce compulsory cashing.
  • Estate Planning – more people will now retain wealth in their Superannuation until their death. The Superannuation may well be lost to the wrong people or the tax man. Binding Nominations are required.
  • What if by mistake you put in too much money into your Super? Unless you can reject or return the excess funds you suffer a high tax rate. The deed must allow the power to reject and return funds.

SMSF pre 2006

Since 2006, SMSF Deeds need updating because of:

  • Thanks to the 2006 Budget SMSF deeds will become shorter and simpler over time. The pension payment sections of old SMSF Deeds are long and laborious. Such complexities are being phased out in the deeds. A lot of complex rules can be removed.
  • SMSF deeds less than 6 years old: Many SMSF deeds have a deeming provision to include all the new SIS rules. This helps. Sadly, these provisions operate only on those mandatory issues that SIS requires a SMSF to follow. What if a SIS change is not mandatory? What if the Deed applies stricter terms than required by SIS?
  • Since 12 March 2004 it has been considered courageous to operate a SMSF without a complying Product Disclosure Statement (PDS). The PDS contains everything that a trustee is expected to know. If you act for a SMSF (as an accountant, auditor, adviser or lawyer) and there is no PDS then the trustee has a higher chance in successfully suing you. This is based on negligence for your failure to bring everything the trustees needed that the trustee needed to know. The PDS protects the professional advisers as much as it protects each trustee from each other.
  • Contribution Splitting – Spouses can split super contributions between accounts or Funds. Your Deed needs to allow this to happen. (November 2005)
  • Your Deed should be able to permit minors (people under 18) as fund members.
  • What happens if a member is totally disabled? This can be permanent or temporary. You need to have a right to that payment. Power needs to be in the deed so that if a member is totally disabled, then the trustee can pay a benefit provided there are funds available from the member’s account or from the proceeds of the insurance policy.

SMSF pre 1999

Since 1999, SMSF Deeds need updating because of:

  • New market-linked pensions. (2004)
  • Interdependent relationships for beneficiaries. (2004)
  • Acceptance of government Co-contributions. (2003)
  • Changes to compulsory cashing of benefits rules.
  • Changes to contribution acceptance rules. (2004 – Changes to over 65 contribution and benefit payment rules)
  • Divorce and super splitting. (2003)
  • All members must be trustees. (1999)
  • When the Australian Taxation Office took over supervising the SMSF funds most deeds were updated – but not all. Without updates the concessional tax treatment may be lost. (October 1999)

SMSF pre 1995

For deeds last updated from 1995-1999 you need to address these additional issues (as well as the ones above):

  • Accepting your wonderful spouse as a member and for contributions. (1997)
  • Expanding the in-house asset rules to related parties. (1999)
  • Providing for complying lifetime and term pensions. (1998)
  • Binding nominations for death benefits (otherwise your son in the SMSF can direct your Super goes to him and not evenly to all your children). If you don’t have a “binding” nomination then the nomination form you sign merely expresses your wish to the trustee. The Trustee can decide who gets your super when you die. Sadly some deeds stop the member having any choice. (1999)
  • Full preservation of your Superannuation. No taking back out your undeducted contributions. (1999)
  • New regulation – ATO takes over looking after SMSFs.(1998)
  • Need to include complying term and life-time pensions. (1998)
  • Ensuring you get the CGT retirement component. Up to $500,000 can go into your superannuation CGT free from the sale of business assets. (1997)
  • The ever useful expanding of acquisition of asset rules to related parties. (1999)

SMSF pre 1994

Don’t point out the “old age” to your auditor. Just update it. You need the above plus:

  • Uses of Pensions or Corporations powers.
  • Election to become regulated.
  • Covenants by the Trustees.
  • Allowing you to adopt rules under the SIS Act for compliance.

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