It is easy to set a self managed super fund, but it’s also easy to make a mess of it!
There are thousands of people who enjoy the many benefits of an SMSF. They set up a self managed super fund for many reasons including control, flexible investment choice, investing into “special” assets that an SMSF can invest in, and most recently borrowing to buy an investment property.
But it can go wrong quite easily. You can be caught with a range of penalties from losing almost half your super in fines to time on gaol. Getting it right with good advice and you can begin to reap the benefits.
Structuring it right
An SMSF must meet several requirements under the super laws to be seen by the regulator as a Self Managed Super Fund (SMSF).
The requirements vary depending on whether your fund has individual trustees or a corporate trustee. Some additional rules apply to funds with only one member.
To start with you need to decide on trustee – individual trustee(s) or a corporate trustee.
If your fund has individual trustees, it is an SMSF if all of the following apply:
- it has six or fewer members
- each member is a trustee
- each trustee is a member
- no member is an employee of another member, unless the members are related
- no trustee is paid for their duties or services as a trustee.
If your fund has a corporate trustee, it is an SMSF if all of the following apply:
- it has six or fewer members
- each member of the fund is a director of the trustee company
- each director of the corporate trustee is a member of the fund
- no member is an employee of another member, unless the members are related
- the corporate trustee is not paid for its services as the trustee
- no director of the corporate trustee is paid for their duties or services as director of the corporate trustee.
In my view some options are better than others…
Here’s some great info on the choice of trustee of your SMSF from the ATO…
Obtaining a trust deed
A trust deed is the legal document that sets out the rules for establishing and operating your SMSF. Together with the super laws, they form the fund’s governing rules and detail the:
- powers, duties and responsibilities of the fund’s trustees
- rights of the members
- scope of the operation of the super fund (what can and cannot be done within the super laws).
An SMSF professional can help you organise a trust deed for your fund, but as it is a legal document, you need to make sure it is prepared by someone qualified to do so.
The trust deed covers areas such as:
- the fund’s objectives
- who the trustees are
- who can be a trustee
- how trustees are appointed or removed
- who can be a member
- when contributions can be made
- how benefits can be paid (pension or lump sum) within legal requirements
- when benefits can be paid
- how to appoint professional advisers (such as an auditor)
- the procedures for winding up the fund.
The trust deed must be tailored to your fund and correctly drafted to meet its objectives and the members’ needs – for example, allowing for the payment of specific benefits. It must also meet all the requirements of the relevant super laws.
There are many online providers of deeds and a range of specialist solicitors who can send you a deed. You shouldn’t mistake the importance of your deed and rules when running your fund. Seeking advice on the deed can prove a valuable starting point. Consider if an online provided deed will meet your needs before you waste money on it.
Hopefully this helps clarify the steps and options involved when you set up a self managed super fund. If you have anything you are unclear of or want some additional advice, feel free to get your super fund advice right here.
