Self Managed Super

Setting up a Self Managed Super Fund (‘SMSF’) requires a corporate trustee as each member of the fund is a director/shareholder of the trustee company. The reason that a corporate trustee is the preferred option over and above individual Money trustees is that the cost to replace a trustee, change all the assets of the fund over to the name of the new trustee, the deed to change the trustee, and amend the trust deed, is four or five times the cost in setting up the SMSF with a corporate trustee, initially. A corporate trustee is perpetual that is it will last the life of the fund without requiring replacement. If a member of the fund should leave, or past away, then it is only a matter of changing the director/shareholder of the trustee company.A SMSF can have up to a maximum of four members. Each member of the fund must be a trustee, or a director/shareholder of the trustee company. Each member of the fund has his or her own member account that is each member’s opening balance, employer and member contributions are recorded, and the proportion of income earned from the overall assets of the fund are attributable to each member’s account balance.

Members of a SMSF are required to have an overall investment strategy for the fund. However, this does not mean that the fund is locked into a strategy that cannot be changed or reviewed on a yearly basis at the direction of the trustees, or directors of the trustee company.

One of the most important aspects of a SMSF is to have members with similar lifetime goals. The most common type of SMSF is set up with a husband and wife as they have similar lifetime goals in respect to retirement. Each member shares a similar investment strategy as they operate as one unit with the same objective. Some families like to include their children as part of the SMSF. However, children are much younger than the parents with different lifetime objectives and risk profile. In this circumstances their is a mismatch between the objectives of all the member of the fund mainly due to the age gap.

A binding death benefit is where each member of the fund binds their benefit to another on death. In the case of a husband and wife, the wife will bind 100% of her funds to her husband and vice versa. This relieves the problem of the member’s fund forming part of their will or a testimonial trust to which the other partner is a beneficiary. Under a binding death benefit the funds of the departing member are just merely transferred between members of the fund rather than forming part of the will of the member.

Under the Superannuation Industry (Supervision) Act 1993 (‘SIS’) has a number of restrictions in respect to the administration of a SMSF. Members of the fund cannot invest, or buy assets from a related member of the fund, and cannot borrower or lend money to a related party. The investment restrictions mean that the fund must invest in assets that are publically listed. A SMSF can
purchase business real property from a member of a fund but not residential property. There have been new changes to the borrowing provisions whereby a SMSF can borrower through a non recourse loan facility to purchase assets. However, the sole purpose of the SMSF is to provide a pension for the members in retirement.