Tread carefully around electronic SMSF deeds
A recent law change in NSW has made it possible for SMSF trust deeds to be executed electronically, but practitioners would do well to remember that such a deed could be challenged by an out-of-state beneficiary, according to DBA Lawyers.
Addressing DBA’s SMSF Succession Planning Day in Sydney on Tuesday, the law firm’s special counsel, Bryce Figot, said a change to the Conveyancing Act 1919 (NSW) had made the state the only Australian jurisdiction where SMSF deeds could be executed without the need for a full hard-copy original.
“In 2018, NSW passed section 38a of the Conveyancing Act, which says you can make a deed electronically. In every other jurisdiction when people ask do we have to print the whole 70-page deed to sign one page, the answer is yes; however, in NSW since this amendment came in, it is possible to make a deed under NSW law electronically,” Mr Figot said.
However, he pointed out that while this could be seen as convenient for NSW trustees, the fact that the jurisdiction was unique meant that any deed executed electronically left itself open to challenge if a beneficiary was able to litigate in another state.
Mr Figot used the example of Booth v Cantor Management (2016), a little-known South Australian Supreme Court case where despite the fact that the SMSF trustee concerned had lived, died, executed their deed and held all their assets in Queensland, a legal challenge was able to be heard in South Australia because the executor of the trustee’s estate lived there.
“So, in NSW, sure, you can make a deed electronically, but a fat lot of good it does you [if it’s litigated elsewhere]. Hopefully, the court would accept it, but the best way to win a legal fight is not to have it,” Mr Figot said.
“If you can get it right in that initial planning stage, it just nips everything in the bud and that’s the gold standard we are aiming for. So, theoretically, yes, a deed can be made electronically in NSW, but practically the answer should be no, that is the answer you need to have in your mind.”
Similarly, while some jurisdictions did not require witnesses to an SMSF deed, for safety’s sake, a best practice deed needed to include an independent witness, Mr Figot said.
“In some states like Victoria, you don’t need a witness, but again since you never know, you should always have a witness that is not party to the deed,” he said.
“If a husband and wife are both party to the deed, can each other witness the other signature? No. In Victoria, yes; in NSW, no — but since you never know which jurisdiction, get someone else.”