Self-managed superannuation funds (SMSFs) continue to attract interest from potential fund trustees eager to make the leap into taking control of their own retirement income. The problem that many of them face is in knowing what questions to ask and where to go to find the answers. To get them started, the most important information they need to know is how to go about setting it up.
At the start, many people assume that there is only one way to structure their fund, so when they find out differently, the first question they ask is about the differences between two options. They then find that the first option is to have individual trustees and the other is to establish a company acting as trustee for the fund. Both of these options should be discussed with a professional before making any decision, as they are difficult to change later.
The next question to be asked, naturally enough, is usually about costs. They find that there are no Australian Securities and Investments Commission (ASIC) fees for a fund with individual trustees, resulting in reduced establishments costs and lower ongoing administrative requirements. However, ASIC charges a fee for the initial registration of a corporate trustee, followed by annual review fees. In the case of both structures, trustees or directors cannot be paid fees for their duties or services relative to the fund.
The ownership of the fund assets is often the next question asked. For an SMSF with individual trustees, the title of the fund assets must be in the name of the current trustees, “as trustees” for the fund. If the trustees change, then the titles must also be changed, which can be expensive. In the case of a corporate trustee, when a person leaves the fund, they cease to be a director and although ASIC must be notified of the change of directors, the titles of the assets remain unchanged.
Often, potential trustees already hold personal assets that are not intended to be part of the fund. They want to know before going any further what will happen to those assets. The answer to this question is quite simple. The assets of the fund must be kept completely separate from any personal assets held by the trustees. The fund assets must be in the name of the fund. Corporate assets are exactly the same except that companies have limited liability.
Finally, the question of penalties for non-compliance arises. Trustees must always be mindful that if superannuation laws are breached, each trustee is liable individually for the administrative penalties. If the same penalties were to be levied on a corporate trustee, they would only be applied once.
There are many other questions to be asked and answered in much more detail than is possible here. Suffice to say that there are companies such as SMSF Assure that will assist trustees with all the administrative details involved in running an SMSF, so they are in a perfect position to give complete and comprehensive answers to these questions.