As a father with two young boys who have recently become enthralled with the Harry Potter series, it has been necessary to reflect on the characters, their personas and what they stand for. It has led me to one obvious conclusion – Voldemort would have no place in a self-managed superannuation fund (SMSF).
While for some the world of SMSFs seems like a magical place, full of wizardry, the truth is different. Yes, if you can get it right, the outcomes can be magical, but there is no wizardry involved; just a requirement to follow the right rules.
To make your SMSF work for you, you need to be actively involved. You are a member, and as a result are a trustee. ATO statistics show that around 80% of all SMSFs are two member funds, and the majority of these would be husband and wife funds. This is common no doubt, but the bubbling question is to whether the SMSF is truly managed by both members, or (if different), is it managed in the same way as the household finances?
In a number of families, often one member of the couple takes greater responsibility for household finances – which could be from setting a budget, paying the bills, and allocating available funds to specific events (be it weekly shopping, entertainment etc). And in a family household, this could be a very valid approach.
When it comes to an SMSF, it’s important not to assume you can simply take the same approach. As is often mentioned, if you are a member of a SMSF, you are also a trustee. If you are a trustee, you have obligations and responsibilities. You can’t wave your wand and make this disappear. Human nature (something Voldemort lacks) might mean that you leave a number of day to day operational decisions of your fund to your partner, and that may work ok and can be acceptable for a period of time.
However, what is sometimes overlooked is future succession planning considerations. Unlike Voldemort, at some point in time we all pass away. Have you given thought to what that means for you? You and your partner may have up to date Wills in place and hopefully you have discussed with each other (and perhaps some of your loved ones) what your wishes are and how you want things dealt to. But have you given thought to what happens to your SMSF?
In the event you outlive your co-trustee and are, or have been a silent trustee to date, having to now bear the sole responsibility for the SMSF can cause some confusion and angst if you don’t understand how your SMSF has been operating; and why certain decisions were made. There are some possible solutions to these issues, but each involves careful consideration.
The first is that under super law, when a member dies, their legal personal representative can step in to fulfil the deceased’s duties as a trustee of the fund until such time as the deceased member’s benefits are paid out. This can help you out provided that the legal representative has an understanding of the SMSF environment. Of course, if you (as is often the case in family situations) are the legal representative of the deceased member, then this doesn’t actually solve the potential problem. To overcome this, a careful consideration of who should be the legal representative needs to occur before death to help alleviate potential issues in the future.
The second consideration arises if you have a corporate trustee structure for your SMSF. Corporate trustees are less common than individual trustees, but can provide significant operational advantages in the day to day operation of a SMSF. However, there are potential issues upon death that again need to be considered. Where a director of the corporate trustee (who is also a member) passes, then the legal representative approach above can again apply. But what becomes important in this context is who is the legal owner of the shares in the corporate trustee? Shares are an estate asset and will (ideally) be dealt with under the Will. But if the shares pass to the wrong person, and they are then able to take control of the corporate trustee, it can lead to difficulties for the ongoing operation of your fund. Early consideration of these issues can again help minimise future risk and uncertainty.
The third, and best option, is to not be a silent member/trustee of your fund. When it comes to an SMSF and looking after your own retirement savings, there really is no place for he (or she) who shall not be named. The law makes this clear by giving you accountability and responsibility, irrespective of the operational role you choose to take. So if you are responsible, isn’t it better to be involved?
Of course, there is no need to do it alone, and this applies both while you and your current co-trustees are alive and when it’s just you. Who is your Albus Dumbledore? Do you have your financial advisers, lawyers and accountants lined up as your wise professors to guide you through the darkest times?
Given the complex nature of super and succession planning, you would be well served by making sure you get the assistance of experienced professionals to provide yourself and your family peace of mind.
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The information in this document has been prepared by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714. The information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on this information, you should consider whether it is appropriate for you.
BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) operates BT Panorama Investments (the investor directed portfolio service operated by BTPS). BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the responsible entity and issuer of interests in BT Cash and Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 is the responsible entity and issuer of interests in BT Managed Portfolios. An Investor Guide is available for BT Panorama Investments and a PDS is available for BT Cash and BT Managed Portfolios (the Panorama products). These disclosure documents can be obtained from BTPS by visiting www.bt.com.au/smsf or calling 1300 881 716. A person should obtain and consider the disclosure documents before deciding whether to acquire, continue to hold or dispose of interests in the Panorama products.
In addition, BTPS is the provider of the Panorama SMSF Establishment Service and the Panorama SMSF Administration Service. The Guide and Terms and Conditions for these services are available by visiting www.bt.com.au/smsf or calling 1300 881 716
BTPS, BTFM and WFSL are subsidiaries of Westpac Banking Corporation ABN 33 007 457 141 (Westpac). Apart from any interest investors may have in Westpac term deposits or securities acquired through Panorama, an investment in or acquired through Panorama is not an investment in a bank or a bank deposit. Westpac and its related entities do not guarantee an investment in or acquired through Panorama Investments.
© Westpac Banking Corporation 2016