Basic Rules for SMSF Trustees
Is a SMSF right for you?
Here are some basic guidelines for Trustees of an SMSF
01
Build your SMSF Support Team
You'll need an Accountant, an SMSF Auditor, a Financial Advisor, and possibly a Lawyer who can work together to support the Trustee of the SMSF.
02
Get your Personal Estate Planning in Place Now
Get your own financial house in order and establish your Will, Power of Attorney and Power of Enduring Guardianship documents.
03
Get to Know The Rules for Managing your SMSF
The ATO has useful information and instructional videos to assist Trustees of SMSFs you can see here.
04
Create your Investment Plan and Work on a Strategy
The ATO states, ‘SMSFs are required to prepare and implement an investment strategy to help meet their investment and retirement goals. The investment strategy is not designed to be a 'set and forget’ document but rather a strategy you continuously review to ensure you are meeting your retirement plans.’
05
Maintain the Liquidity Needs of your SMSF
The Trustee of an SMSF is required to regularly consider the liquidity needs of the fund and its members. As the purpose of your SMSF is to build up a pool of assets to sustain your lifestyle throughout your retirement, if the fund’s assets are primarily held in property, being a bulky assets, this may not give you the required liquidity.
06
Establish your SMSF Company Trustee Power of Attorney
Maintain your ability to continue to make decisions for your SMSF through a Company Power of Attorney so the fund does not become locked if the director of the company trustee is unable to make decisions.
07
Document Your Decisions, Meetings & Strategy Reviews
Your SMSF Auditor will need to ‘evidence you are running a complying SMSF’ and this will require documentary evidence to support your good decisions.
08
Plan Ahead for the future transfer from the Accumulation Phase to the Pension Phase
Understand how ‘lumpy’ (relatively illiquid) assets may affect the funds ability to make the annual minimum drawdown each year in pension phase, to maintain the funds tax-exempt status, so a strategy to manage this phase will be needed ahead of time.
09
Stay Connected to Good Advice
The SMSF legislative environment continues to change and develop so Trustees of an SMSF need a way to maintain their knowledge of key changes and requirements. This is where building a long-term relationship with your advice team contributes significant value to your SMSF strategy.
For SMSF Trustees
Modern Estate Planning for SMSF Trustees — and their members
Many Australians are beginning to hold significant levels of assets in super and for many Australians, super is becoming their largest asset (outside the family home) so it makes sense to ensure there’s appropriate planning in place for control of an SMSF after death.
Many people mistakenly believe their self-managed super fund (SMSF) is a set-and-forget structure and many still believe the balance of a super fund falls under the power of a persons Will document to distribute – and that is not the case.
- Superannuation funds are held in trust and not owned directly by the member of the fund - and therefore are said to be non-estate assets – outside the Will documents power to deal with.
- A wise strategy is to have a SMSF Death Benefit Nomination as well as a personal Will document in place, and for SMSF’s with Corporate trustees with a single director, a Company issued Company Power of Attorney.
Who gets your SMSF benefits when you pass away?
When a self-managed super fund (SMSF) member dies, the SMSF generally makes a death benefit payment to a dependant or other beneficiary of the deceased.
But unless there is a Death Benefit Nomination in place, the trustee of a superannuation fund has the sole discretion to pay death benefits to an estate or directly to a dependant, such as a spouse, a child, or a financial dependant.
- In Australia, there's been litigation on issues where the courts have upheld the SMSF trustees decision to payout a deceased members super benefits in a way where the deceased member may not have intended.
- In the case of Katz v Grossman the courts upheld the SMSF trustees decision to pay out the deceased members super benefits, solely to one of two children - to the exclusion of the other.
Who controls the SMSF when the Trustee passes away or suffers dementia?
Upon the death of a member of an SMSF, the SMSF trustee is responsible to administer the fund as to how the deceased members benefits will be paid out.
- SMSF funds have suffered significant losses where the Trustee suffered a stroke, was overtaken by dementia related illness or simply lost the ability to continue to make valid decisions about how the SMSF is run.
If there is a Sole Trustee only in place (with no Company Power of Attorney document in existence) there’s an increased risk of the company trustee becoming ‘locked,’ if the sole director were to become sick, suffer significant injury (or unexpectedly pass away) without the means to appoint a substitute.
Estate Planning for Single Trustees of an SMSF
Good estate planning starts with three legal documents:
- An SMSF Death Benefit Nomination
- A personal Will document in place, and for SMSFs with Corporate trustees with a single director,
- A Company issued Company Power of Attorney.
