Averting disaster: A guide to SMSF deeds
It’s vital that SMSF practitioners understand what is required for a document to be a deed to avoid significant consequences.
It's vital that SMSF advisers know what is required for a document to be a valid deed. The requirements are often overlooked by clients, ‘off the shelf’ deed suppliers and even some advisers.
Failing to meet these requirements can be disastrous for clients relying on a set of governing rules that have not been validly adopted in the event of a family dispute or litigation over a binding death benefit nomination, reversionary pension nomination etc.
Deeds are vital to the SMSF industry and most SMSFs will be established by deed. Subsequent variations to the deed, as well as a range of other documents, will typically be contained in a deed.
Deeds are intended to be a solemn and binding declaration of a person’s intentions. Traditionally, they require three formalities to be considered valid:
• they must be written on paper, parchment or vellum;
• they must be sealed; and
• they must be delivered.
Hence the expression ‘signed, sealed, and delivered’.
Unless otherwise provided for in legislation, these formalities are still required. However, this has been varied by a range of legislation.
Sealing a deed
Legislation has varied this requirement by prescribing methods in which a deed is taken to have been sealed. The position regarding sealing varies significantly between jurisdictions. For example, in NSW, if a deed is expressed to be a deed (eg, it says ‘executed as a deed’), it is taken be sealed. In Victoria, the words ‘signed, sealed, and delivered’ (or similar) are required.
Delivery of a deed
Case law states that delivery “means some conduct indicating that the person who has executed the deed intends to be bound by it” (Monarch Petroleum v Citco Petroleum  WAR 310).
Again, this is usually achieved by the words ‘signed, sealed, and delivered’. However, some states have altered the requirement.
Witnessing a deed
The default position does not require witnesses to a deed. However, a majority of jurisdictions now require a witness who is not a party to the deed.
Companies and dating of a deed
The position for companies wanting to execute a deed is different. This is due to s.127 of the Commonwealth Corporations Act 2001.
Section 127 states that a document (including a deed) can be executed if it is signed by two directors or a director and a secretary. Therefore, the above requirements (sealing etc) do not apply to companies.
Note that this does not cover a proprietary company with a sole director who is not a secretary. Therefore, it is always best practice to also have a secretary.
In addition, a deed does not need to be dated in order for it to be valid.
What if a document fails to be a deed?
Documents designed to be used in a particular jurisdiction may fail to be a deed in others. This can have serious consequences in the case of SMSFs.
Unless the original deed provides otherwise, the default position is that only a deed can vary another deed. As such, if a document that attempts to vary the governing rules fails to be a deed, then the new governing rules are typically not adopted. This can be disastrous for clients who are relying on an updated set of governing rules that has failed as a deed.
It is best practice to ensure all the relevant requirements of all jurisdictions are met. This is not an onerous process but does require an adviser to be alert. It is best practice, where an individual signs a deed, to have:
• a witness who is not a party to the deed; and
• the words ‘executed as a deed’ and ‘signed, sealed, and delivered’ appear.
It is best practice, where a company signs a deed, for the company to have a secretary and for the words ‘executed as a deed’ to appear.
Ensuring that this ‘best practice’ method is followed will also place clients in the best possible position in relation to the validity of the deed where the matter is litigated in another jurisdiction.
This frequently occurs where, for example, a client lived in Victoria though retires and dies in Queensland. The estate is then litigated in Queensland where legislation imposes different requirements from those originally required in Victoria.
Bryce Figot is a director at DBA Lawyers.