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review your SMSF trust structure

SMSF Review – Individual Trustees a Disaster Waiting

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review your SMSF trust structureThe majority of SMSF in Australia are estate planning disasters waiting to happen.

Why?  Because the majority of people have avoided the expense of using a corporate SMSF trustee, and have chosen the cheaper option of setting up their SMSF with ‘individual trustees’.

As you are probably aware, a SMSF can have up to four members, and all of the fund’s members must be trustees.  There is a choice of trustee structure.  Members can choose:

  • To act as individual trustees; or
  • To act as directors of a company that acts as corporate trustee.

The problem arises in two member funds with individual trustees (which would be the majority of SMSF in Australia) when one member dies.  A SMSF cannot operate with only one individual trustee.

The reason it’s not permitted is a legal trust relationship cannot exist with only one person involved.  A SMSF with individual trustees is required to have at least two trustees to operate.  So it means bringing in a second trustee.  In some family circumstances, this can be a problem.

Depending on who the person is, bringing a new trustee into the fund to replace a trustee who has passed away can upset the balance of SMSF control at trustee level, with the potential to send a couple’s original Estate Planning into a tail spin.

On the other hand, if a company is the trustee, it can continue to operate with one director only.  The advantage of a corporate trustee is that when the first death in a couple occurs, SMSF management and control stays firmly in the hands of the surviving spouse and the Estate Plan can stay on track as originally intended.

Just another note of caution!

If you already have a company for another purpose, don’t rush into to using it as the corporate trustee for your SMSF without first seeking advice.  That could create more problems than it solves.

So if you are an individual trustee of a 2-or-more-member SMSF, please raise the level of urgency for a SMSF review to high.  Call me and I will fix the problem for you.  It is not difficult to do, but it is time consuming to change the name of the trustee on all of your investments.  However, it could save you a lot of money and heartache down the track.

Gary

General advice warning

The article above is general advice only designed to educate and heighten awareness of superannuation issues. It should not be regarded as personal advice because it does not take into account your personal circumstances, financial situation or specific goals. For personal advice that is tailored to your needs, please contact me or consult your licensed financial adviser.

 

estate planning is essential

SMSF Review – No Estate Plan?

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estate planning is essentialMost clients I see for a SMSF review have not done much about Estate Planning.

Estate planning means making a plan for the distribution of everything you own and control when you die.

While most people I meet have been meaning to get around to it, they haven’t taken action.  I understand why because it is a complex area, and sometimes it is hard to know where to start.

Estate planning is more than just having a Will.  Your last will & testament only deals with money and assets that are owned in your personal name.  Whether you realize it or not, you probably have other assets within your control that can’t be dealt with directly by your Will.  There are separate strategies for these.  They include:

  • Money & investments held in superannuation, including your SMSF
  • Life insurance policies
  • Jointly owned property (e.g. your home)
  • Money and property controlled in a private company or trust

Whilst you can’t put your home in your SMSF, it is common to draw some of the other common elements of your wealth together into your SMSF such as money, investments, property, life insurance policies and business premises.

And there is a reason for this!

One of the lesser known advantages of a SMSF is the protection it offers as a vehicle which can carry and distribute family money and assets from one generation to the next.

I can’t emphasise enough how important estate planning is as part of a SMSF review.

This protection is not only effective against those you love the least, like creditors and those who want to sue you, it is also effective against potential risks arising from family members you love the most.

I know that sounds really strange, nut here’s an example.

The last thing you want is for hard earned money to be squandered by a child with a drug or gambling habit, or be taken by a child’s departing spouse as part of a divorce settlement.  That can happen if you don’t get it right.  And I can tell you now that a simple Will won’t cut it.

Also if you have a child who can’t fend for themselves, for example a child with a disability or a spendthrift child, you can set up the means to provide for that child for life, long after you’ve departed this world.

However, it is essential that all of these arrangements be put into place while you are alive and still have your full mental faculties to make such decisions.

This is the heart of estate planning!

Call me for a SMSF review and get your SMSF working for you as the inter-generational wealth vehicle it should be.

Gary

General Advice warning

The article above is general advice only designed to educate and heighten awareness of self-managed superannuation and estate planning issues. It should not be regarded as personal advice, because it does not take into account your personal circumstances, financial situation or specific goals. For personal advice that is tailored to your needs, please contact me or consult your licensed financial adviser.