The point of spending every waking moment working your socks off – apart from providing for your family and enjoying yourself – is to have something to fall back on in your golden years when you probably you do not have the same energy to carry out your day to day duties.
One way to ensure that you will be financially taken care of after you retire is to set up a self-managed superannuation fund (SMSF). Though there are other types of superannuation funds, one that is run by you, for you, is more rewarding since you have much more control over it.
Below we delve into the details of how to take your future into your own hands and set up an SMSF.
1. Decide on the trustee structure of your SMSF
Before you can go ahead to set up your very own SMSF, you need to think hard about the structure your fund will take. That is to say, you need to decide whether the SMSF will have individual trustee or a corporate trustee where the fund members are directors.
When the SMSF has individual members as trustees, they should not expect payment for their service as trustees of the fund. The same can be said of the corporate trustee fund. The Directors of the corporate trustee are not paid for fulfilling their role.
Once you have decided on the trustee structure of your SMSF, you should then determine if you and the other members are eligible to be trustees of the SMSF. The trustees need to be older than 18 years and should not be facing bankruptcy. Without conforming to these criteria, the ATO will reject the proposed trustees.
Superannuation funds are eligible for concessional rates for contributions and earnings tax. In order to qualify for these concessions, the SMSF must check all the boxes for it to be referred to as a complying Australian superannuation fund.
You should also consider a fall back plan in the event that you are no longer able to actively take part in the running of the fund. Therefore, it is wise to have a plan in place including appointing an enduring power of attorney and make decisions on your behalf should injury or illness leave you unable to fulfil your duties as Trustee or Director of a Corporate Trustee. There are also significant estate planning benefits of having a corporate trustee structure in the event of the death of one trustee in a two-person fund (like a married couple). If one of the two individual trustees were to pass away, the SMSF cannot continue with only one trustee therefore immediate and drastic action must be taken. If a corporate trustee is in place, the SMSF members do not face the same issue.
2. Lay a solid foundation
From the drawing board, once you have determined the trustee structure of your SMSF, it is now time to take the next step to establish the fund.
First and foremost, you should obtain a trust deed. A trust deed is a legal document that sets out the rules for establishing and operating your fund. It includes such things as the fund’s objectives, who can be a member and whether benefits can be paid as a lump sum or income stream. The trust deed and super laws together form the fund’s governing rules.
The trust deed must be:
- prepared by someone qualified to do so – it’s a legal document
- signed and dated by all trustees
- properly executed according to state or territory laws
- regularly reviewed, and updated as necessary.
Now that you have obtained your trust deed, you should appoint the trustees of the SMSF. In the 21 days that follow the appointment, the trustees need to sign a trustee declaration. This is a document that confirms that each trustee understands and accepts their role and responsibilities, plus the consequences for non-compliance.
Now it’s time to register your SMSF with the ATO. At the time of registration, the ATO assesses the risk that each trustee or member brings to the SMSF, and if they meet the criteria to act as trustee or Director of the corporate trustee. At the same time, you need to elect to have your SMSF regulated by the ATO in order to be eligible for tax concessions.
At the end of the registration process, the ATO will provide your SMSF with its own TFN as well as an ABN. You also have the choice to register the SMSF for GST. Your Financial Planner can assist with this process.
You now open a bank account for your SMSF where the members will deposit their superannuation contributions. This includes informing your employer to forward any Superannuation Guarantee contributions to the new SMSF bank account. If your SMSF has plans to trade in shares and securities, you also need to open a share trading account.
Now that your SMSF is set up, you should roll over your existing benefits from other funds into this current one. Once the previous superannuation fund receives your application for a roll over, they need to transfer the money within 28 days. Before doing this, it is very important to consider the impact on any insurance that is currently in place under your existing super fund. Before you roll over the funds which cancels the insurance, you should seek insurance advice from a Financial Planner.
With all everything in place, you should start making contributions into the SMSF’s bank account. As part of the annual compliance process, each contribution and type of contribution should be allocated to a specific member.
3. Building and securing your wealth
Every SMSF must have an investment strategy that will determine how the funds within the SMSF will be invested. The investment strategy must be documented, detailing the investment objectives of the fund, plus what asset classes the fund can and cannot invest in.
In a constantly changing world, this investment strategy needs to be reviewed so that the risk of the fund is assessed and adjustments to investments made as necessary.
With the investment strategy in place, you the members can start putting in their regular contributions. Assets other than money on the account are accepted as contributions – such as transferring an existing share portfolio into your SMSF. The trust deed as well as the superannuation laws define what is and what isn’t accepted as contributions to the SMSF.
To keep the fund running smoothly, the trustees must keep on top of their record keeping requirements. Financial records like annual tax returns and bank account statements should be kept for a period stretching back 5 years. Administration documents like meeting minutes and registration documents should be kept for at least 10 years. A good SMSF administration service will be able to make this process manageable. Gone are the days of keeping receipts and bank statements in a shoe box.
Once the SMSF is up and running, at the 12-month anniversary you need to prepare an SMSF annual return. This shows the member contributions, income tax as well as the regulatory information. To also make sure that you are within the bounds of the law, plus the SMSF trust deed. You need to appoint an independent, qualified Auditor to run a fine comb through the books of the fund to confirm your fund is complying. Your Financial Planner will be able to assist you in sourcing a qualified Auditor.
When it comes to receiving the benefits from the SMSF, a member can only do so when they reach their preservation age and also meets one of the conditions of release. One such condition is retirement. The beneficiary might either take a lump sum or receive the money as an income stream. The SMSF can then commence pension payments in order to fund your retirement, without having to sell down assets which would trigger capital gains tax.
Even though the purpose of the SMSF is to plan for your retirement, you need a ‘Plan B’ just in case you are not around to collect your benefits. You should put plans in place for a loved one to receive your benefits in case you have passed on. A Financial Planner can assist you with determining what to do with your SMSF funds upon your death, then a Solicitor can put your wishes in writing via an Estate Plan.
Author: Pat Casey – Managing Director, Assure Wealth
At Assure Wealth, we specialise in helping busy, successful families get their financial house in order, bring structure to their finances and achieve financial peace of mind. We have a particular focus on helping people to establish a self-managed superannuation fund (SMSF), plus self-managed superannuation property investment. Our SMSF service operates on a fee for service basis to offer complete transparency on costs.
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At Assure Wealth we specialise in helping busy, successful families structure their finances to achieve greater wealth and financial peace of mind.
Disclaimer: The information provided on this website has been provided as general advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Walker Lane Pty Ltd Adviser before you make any decision regarding any products mentioned in this communication. Whilst all care has been taken in the preparation of this material, no warranty is given in respect of the information provided and accordingly neither Walker Lane nor its related entities, employees or agents shall be liable on any ground whatsoever with respect to decisions or actions taken as a result of you acting upon such information.
Assure Wealth Pty Ltd ABN 31 965 466 780 Corporate Authorised Representative no. 1244817, Patrick Casey Sub-Authorised Representative no. 1244748 of Walker Lane Pty Ltd ABN 70 626 199 826, an AFSL holder No 509305.