New: Amendment to SMSF borrowing

Sharmistha Bose, Product Marketing Specialist

In response to your feedback, Cleardocs is pleased to introduce the new Amendment to SMSF borrowing document package. This document package allows you to vary the Declaration of Custody Trust (Custody Trust Deed) that the SMSF purchased as part of the SMSF borrowing (bank) document package and which has been signed. It assists to easily resolve common lender issues with your existing Custody Trust Deed and pre-populates details from your SMSF borrowing (bank) document package order. You can order a Cleardocs Amendment to SMSF borrowing for $308.00 inc. GST. What changes to the Custody Trust Deed are covered? Sometimes, the lender and the details of the authorised investment change after the Custody Trust Deed has been signed - and the lender may require the Custody Trust Deed to be varied to address the changes. The Cleardocs Amendment to SMSF borrowing document package covers the following variations to the Custody Trust Deed: change in lender; and change of any other details of the authorised investment in the schedule to the Custody Trust Deed (such as the loan amount and settlement date). What documents are included in the Cleardocs package? The document package includes: the Deed of Variation that varies the SMSF's existing Custody Trust Deed; and  an Establishment Kit explaining what to do next.  Is a Cleardocs Custody Trust Deed required for this document package?     Yes. To use this document package, the SMSF needs to have a Cleardocs Custody Trust Deed purchased as part of the SMSF borrowing (bank) document package. This package is intended to supplement the SMSF borrowing (bank) document package and is drafted for consistency with those borrowing documents. As with all our packages, the legal documents are signed off by top-20 Australian law firm, Maddocks.  Any questions? If you have any questions about the Amendment to SMSF borrowing or any of our other products, please contact our free helpline on 1300 307 343. +Cleardocs Thomson Reuters

SMSF borrowing with Cleardocs: Clarifying the steps

Lisa Galbraith, General Manager Cleardocs

Borrowing through your Self Managed Superannuation fund continues to be an important strategy for trustees.  At Cleardocs, we often have customers asking how to get started.  This blog highlights some of the useful resources on Cleardocs and the document order process.  Obviously, any borrowing arrangement needs to be carefully considered.  We always recommend our users obtain professional legal and financial advice as Cleardocs cannot (legally) provide this.

The process

Step 1:

You must have an existing SMSF trust deed that allows borrowing.  If your deed was established before July 2010 and has not been updated since then, it is unlikely to have the borrowing clauses that the banks like to see.  The banks are looking for very specific wording in relation to borrowing; older deeds typically do not include the appropriate phrasing.  If you have a Cleardocs SMSF, you need to have a deed of version 11 or greater.

Step 2:

Meet with your lender to clarify the necessary structures and borrowing limits.  For example, the bank may want the trustee of the SMSF and/or the trustee of the bare trustee to be a company.

The corporate trustee for your bare trust cannot be the same as your SMSF corporate trustee. In this instance, you will need two companies.

Step 3:

With the understanding of your preferred lender's requirements, you can create the necessary borrowing documents through Cleardocs.

If you need to change your SMSF trustee, you must first order the SMSF Change of Trustee document package from Cleardocs. Then, if your lender requires a corporate trustee for the bare trust, you will need to register a company  – Cleardocs company registration package does this for you.

Cleardocs has two borrowing packages – SMSF borrowing (bank) and SMSF borrowing (related party).  This will be the final package of documents you need. 

Once you have completed the packages, our lawyers at Maddocks recommends you provide the unsigned borrowing package (together with your SMSF documents) for your lender or bank  to review – this is because it is much easier to make changes when the document is unsigned.  lender

Step 4:

Once all the parties are satisfied with the documents you are ready to purchase the required assets.

Resources

The legal structures and parties involved with borrowing can be complicated.  To help you through the process, Cleardocs with our lawyers at Maddocks have developed a number of helpful resources.  Our borrowing product page is the best place to start.  Look out for:

Interactive graphic

Detailed information

ClearLaw articles on a wide range of SMSF topics

As always, please call the Cleardocs Helpline on 1300 307 343 if you have any questions.

+CleardocsThomson Reuters

SMSF limited recourse borrowing arrangement. What to do when important information is unknown or unavailable.

By Mahjabeen Khan, Customer Support
 
This has been a question from Cleardocs customers for some time now, so I thought it would be helpful to address it in our blog. 

I recently joined the Customer Support Team at Cleardocs and have been assisting customers with questions about our products since August 2013. I've come to realise that customers feel more secure when they are referred to published information. It assures customers of the authenticity of information and if it’s displayed on the company’s website, it is reviewed and approved by subject matter experts.

Let’s look at the ‘Loan’ section on the SMSF borrowing interface. Help text guides the user how to complete the interface when information is unavailable. (for example, the loan amount, the loan term and the settlement date) 

Figure: 'Loan' section - SMSF borrowing interface

• The question: Let’s start with the questions in the form. The help text which pops up when you click the information icon, prompts the user to ‘type in xxxx (or something)’ when information is unavailable. Some customers get confused about the help text thinking that it applies to all the questions they don’t have an answer for. You can enter ‘xxxx’ in loan amount field, however, the loan term and settlement date, even if it’s an estimate must be entered. The settlement date must be in date format.
• The issue: On Maddocks’ advice, we generally warn our customers not to sign any documents which contain incorrect or only approximate information. As a result, customers are wary of presenting draft SMSF borrowing documents to the bank for review. Some customers have questioned why we need this information at all, at a stage where it’s not yet available.  
• The solution: The exception to the rule for not signing documents with incorrect information is the SMSF borrowing documents packages. Over the years, we’ve worked extensively with banks to tailor the borrowing documents to each bank’s specific requirements. Any documents you show to the bank or your client (if still in draft format) can be changed. The banks have provided this assurance.   

If you keep the above points in mind, this should satisfy the lender’s requirement. All our documents have been signed off by top 20 Australian law firm, Maddocks.

For more information on this or other SMSF matters,  just give us a call on 1300 307 343 or send us an email at support@cleardocs.com and we'd be more than happy to help.  

+Cleardocs Thomson Reuters  

Changing SMSF Trustee’s with Cleardocs

Danni Kirwan Marketing Executive

Last year, Cleardocs launched our Change of SMSF Trustee product, enabling our customers to change the trustee(s) of their Self Managed Superannuation Funds (SMSF’s). The Change of Trustee can be used to:

• replace individual trustees with a corporate trustee
• replace a corporate trustee with individual trustees
• remove trustees
• retire trustees
• add trustees

By the way, if you are interested in changing trustees of another type of trust — discretionary (family), unit, or hybrid — then see our earlier blog Careful about changing a Discretionary Trust, Hybrid Trust — even just changing trustee

Why change SMSF Trustee’s?

Many SMSF’s are making the decision to change to a corporate trustee to enable easier administration — particularly, in the circumstances of admitting or removing trustees, or the death of a trustee. Also a corporate trustee can enable a fund to operate with an individual as both the sole member and sole director of the corporate trustee.

In addition to these reasons, the recent popularity of SMSF borrowing has seen an increase in SMSF trustees changing from individuals to corporations – at the request of some of the banks.

If you’re changing from individuals to a corporate trustee, then you’ll need to have registered a company first as the ACN number is required to complete the Change of Trustee documents. You can register a special purpose company with Cleardocs for $537.50.

Although changing from individual to corporate trustees is popular, many SMSF’s also have reason to add or remove individual trustees. SMSF’s can operate for decades, so it’s reasonable to expect some changes to occur within that time that may affect the trustee(s) of the fund. Some basic examples include removing a trustee in the case of a marriage breakdown, or adding a trustee when parents add their children to their fund.

Get advice first

Regardless of the reason for the change, it is important:

· to get professional advice about your situation before deciding what to do; and

· to record any change of trustee(s) appropriately so that the SMSF’s documents accurately reflects the current situation of the SMSF.

Removing a trustee? Not without their signature...

Although the Change of SMSF Trustee documents can be used to remove or retire trustees, it is important to note that the documents require the signature of the outgoing trustee – so the documents cannot be used:

· to remove a trustee without their participation; or

· to remove a trustee who has died — in the case of a deceased trustee, we can refer you to our legal helpline at Maddocks for the appropriate documents.

Using the Cleardocs Change of SMSF Trustee

In order to remove a trustee, the SMSF must first have a Cleardocs deed. If the SMSF doesn’t currently have a Cleardocs deed, then you can update to a Cleardocs SMSF deed for $99. This ensures that our Change of Trustee documents are suitable to use with the SMSF deed.

To find out more about our Change of SMSF Trustee package, click here to go to the product page.

Careful about changing a Discretionary Trust, Hybrid Trust — even just changing trustee

Christopher Balmford, MD

Any change to a discretionary (family) trust, or to a hybrid trust, requires careful consideration to make sure the change will not involve any ending of the trust or creation of a new trust out of the existing trust. These sorts of changes are often called a "resettlement of the trust".

Why is a resettlement risky?
Any ending of a trust, and any creation of a trust out of an existing trust, can cause trust property to be disposed of and acquired — which has tax and stamp duty implications.
Although changes can be made to discretionary trusts and to hybrid trusts, they need to be carefully thought through on the basis of sound legal advice.

Changing a trustee of a discretionary trust
As the ATO says in a useful paper about changing a discretionary trust (see http://www.ato.gov.au/businesses/content.asp?doc=/content/14283.htm&page=1&H1 and the links in the box on the right-hand side of that page):
"A change of trustee does not in itself result in a termination of the trust. If there is merely a change of trustee, the trust property with the accompanying equitable duties are assumed by the new trustee and the trust estate continues unchanged. On the other hand, a change in the trustee or control of the trustee may be an element in arrangements which in their entirety amount to the creation of a new trust."

It's the "On the other hand . . ." that we all need to be careful about. So we are.

Cleardocs and changing a trust
Several times a day, the Cleardocs helpline rings with someone — perhaps, a trustee, a beneficiary, or a professional advisor — asking about a change they want to make to a trust. Often they want to change the trustee(s) of a discretionary trust, but sometimes the change is more complicated.

Due to the risks involved (even in changing trustee, or just changing the control of a corporate trustee), we refer all these customers to the free legal helpline at Maddocks, which we arrange for our customers. As part of the free legal helpline, the lawyers at Maddocks explain the risks and what's involved in making any changes that are safe to make — and how to make them safely.

If our customer decides to make the change to the trust, then Maddocks can prepare the relevant documents. But this work is not part of the free legal helpline. So Maddocks charges for this work in the usual way. Maddocks always give a quote first — also, because the firm handles so many of these calls, it has developed an efficient system which helps to keep costs down. If the relevant Trust was set up on Cleardocs, then — because the firm's lawyers know our deed so well — the firm's fee is usually lower than if the trust was set up elsewhere. For an up-to-date quote, call Cleardocs on 1300 307 343 and we will arrange for you to speak with one of the lawyers at Maddocks.

(By the way, changing the trustee of a Self-Managed Superannuation Fund is a much simpler and less risky activity — which is why we have an online document package "Change of Trustee" for SMSF, see http://www.cleardocs.com/products-change-of-trustee.html.) As much as we'd like to have a document package to change the trustee for a Discretionary Trust, we can't. Most of our customers are pretty understanding about this — indeed, they appreciate our "safety first" approach.

What are the risky changes?
The ATO points out (in the paper mentioned above) that many changes to a trust — even though they may not actually create a new trust (and so may be safe) — "raise the question of whether a new trust has been created". The changes to be careful of include any one or more of the following (this is a slightly reworked version of the ATO's list):

• any change in beneficial interests in the trust's property;
• creating a new class of beneficial interest;
• altering an existing class of beneficial interest;
• redefining a beneficiary class;
• changing the terms of the trust — that is, changing the deed;
• changing the rights or obligations of the trustee;
• changing the nature, or features, of trust property;
• adding property which could amount to a new and separate settlement;
• depleting the trust property;
• changing the termination date of the trust;
• changing the trust in a way that is not contemplated by the terms of the original trust;
• changing the essential nature and purpose of the trust;
• converting a discretionary trust to a unit trust;
• merging two or more trusts;
• splitting a trust into two or more trusts.

FAQs about Discretionary Trusts
For FAQs and answers about Discretionary trusts, see: http://www.cleardocs.com/resources-legal-faq-discretionary-trust.html#17

Set up a Trust: Discretionary Trust, or Unit Trust - Fixed, or Unit Trust - Non-fixed, or Hybrid Trust
You can set up a range of trusts online at http://www.cleardocs.com/

Any questions?
If you have questions:

• about how to use Cleardocs, contact the Cleardocs helpline on 1300 307 343.
• about legal issues, contact the Cleardocs helpline on 1300 307 343. If you need advice, we can arrange for you to speak with a lawyer at Maddocks. The firm provides a free legal helpline in relation to the documents Cleardocs provides. If you require other legal advice in relation to your particular circumstances, then this will be charged for.