Scott Hay-Bartlem, partner at Cooper Grace Ward Lawyers, said at the recent SMSF Adviser Technical Strategy Day in Brisbane that changes in legislation and regulations can mean a “special” or bespoke deed can still fail.
“There are many times I’ve done special deeds for people, and the law has changed,” he said.
“Sometimes with special provisions, there’s nothing unusual about it [but you must ask] did I read the deed? Did I think before I did these things? Did I think before I updated it?”
Hay-Bartlem said a trust deed overlay cannot be forgotten and often the person drafting it has not understood fundamental points such as the difference between a tax law dependant and a SIS dependant, which could invalidate any special provisions included.
“For example, if you’ve got a strategy that involves paying a death benefit to someone in an interdependancy relationship, it’s not going to work if your deed is pre-2000 because it was 2000 that these rules came in,” he said.
“Trust deeds are boring, but from a super law and a trust law perspective, they let you do things or stop you from doing things. Sometimes they are deliberate and sometimes it’s accidental and sometimes it’s just really, really bad drafting.”
Even if a deed is relatively current, it can present problems if certain definitions or regulations have not been fully understood in the drafting process, he said.
“I had a deed from 2023 which stated death benefits were to be paid to dependants, but it used the tax law definition, not the super law definition. Now, why is it a problem? Because the tax law definition is narrower than the super law definition,” he said.
“Adult children are only tax law dependants if they are in an interdependancy relationship or financially dependant under the super law, but if your trust deed says you can only pay to someone who is dependant for tax law purposes, you cannot pay your super directly to your adult children unless they are financially dependant or in interdependency relationship.”
Hay-Bartlem gave a scenario of Dom, an 80-year-old client who had formed a new relationship and wanted to leave the new partner his superannuation.
“Dom’s friend would at least qualify as being in an interdependancy relationship, and Dom wants his super to go to that friend, right? For interdependance, you have to follow SIS law and four elements – a close personal relationship, living together, some degree of financial dependence and some degree of personal care,” he said.
“But have you read the deed? How old is Dom? He’s 80 and he hasn’t updated his deed from the 1990s. Have we checked the deed to make sure we can pay to someone in an interdependancy relationship?”
He explained that most binding death benefit nomination revisions allow payments to either a dependent or the estate. However, if your definition of a dependent is based on a deed from the 1990s, it won’t include interdependency relationships.
“If you’ve got a binding death benefit nomination to a ‘friend’, but the deed doesn’t allow for an interdependancy relationship, the binding death benefit nomination probably isn’t valid or binding, so the whole strategy is out the window because you didn’t read the deed,” he said
