This question can be expected. It helps to have a prepared document setting out the Advantages and Disadvantages of each situation. The document can also explain the role of a Trustee of a SMSF.
A document is so much easier to email, or hand across, then you can speak to that, rather than talking off the top of your head and hoping you cover everything. Plus, it should be easier for the client to later review and understand the points.
The Responsibilities of a Trustee of a SMSF
- The ATO booklet “Running a self-managed super fund: Your role and responsibilities as a trustee” is a useful document. Your document can note the following key issues, so trustees are reminded of the need to,
- Ensure at all times the SMSF complies with the “sole purpose test”, that is the Fund is “maintained for the sole purpose of providing retirement benefits …”. This can be determined from a review of the investments and the transactions of the Fund.
- Protect the assets of the fund, by ensuring they are secure and properly owned in the correct names
- Keep SMSF assets separated from other family assets
- Avoid lending money to members of the fund or other family members plus, avoid allowing others to access monies of the Fund
- Act in accordance with the Trust Deed of the Fund
- Ensure the SMSF is audited annually
- Lodge an SMSF Income Tax Return annually
- At all times “act honestly” and “exercise skill and diligence in managing “ the Fund
The Advantages of Individual Trustees
- This will avoid extra set up costs of around $1000 – $1500 and extra annual fees of around $300 – $500 pa
The Disadvantages of Individual Trustees
- A sole member SMSF needs another individual as a trustee
- Difficulties are created when one personal trustee dies, another trustee must be quickly appointed
- A simple lump sum benefit cannot be paid, a pension has to be surrendered or commuted
- If a penalty is applied, say $10,200, then that amount will be levied on both individuals.
The Advantages of Corporate Trustees
- If a member dies or otherwise ceases to be a member of the fund, the company will continue to operate and assets will continue to be owned in the name of the company
- If a person becomes a new member of the Fund, they will need to become a Director of the company, but the name of the owner of the assets stays as the company.
Written by David Saul – Saul SMSF www.saulsmsf.com.au
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