Four tweaks to your DIY fund will make things easier not just for you but for your loved ones too.Join our newsletter
Why wait to make changes that will take your self-managed superannuation fund to the next level? Use the holiday break to set time aside to make four tweaks to your DIY fund – “gifts” to your finances that will keep on delivering over the long term.
Switch to a corporate trustee
For anyone still with individual trustees, make this the time you finally convert your SMSF to a corporate trustee. Yes, no one likes extra costs and it will cost money to set up a company. There will also be ongoing fees to ASIC.
But a corporate trustee is better in every way. One of the many compelling reasons for a corporate trustee is how much easier it makes things when one of the members dies. That’s a time when there is just so much administration anyway – why make the burden on those you leave behind even heavier by also leaving them with the job of changing the SMSF trustee?
Technically, someone intending to wind up the SMSF when the first member dies can get away without making this switch. This is because an SMSF is often allowed to break the normal rules and have just one individual trustee for up to six months when this happens.
In theory, that should be plenty of time to sell all the assets, pay out any benefits and wind up the fund.
But in practice, banks and other financial institutions will often prevent access to the fund’s cash and investments until the fund has a trustee structure they recognise as normal. And a single individual trustee won’t compute.
Enduring power of attorney
A second critical asset for any SMSF member is an enduring power of attorney. Strictly speaking, that’s not a document that relates to the SMSF but it is one that is vitally important for anyone with an SMSF.
A power of attorney is a document that allows someone (the attorney) to do things on behalf of another person (the donor). An enduring power of attorney is a document that allows this power to continue even if the donor is no longer capable of doing it themselves (say because they have dementia).
SMSF rules have special safeguards that allow someone who holds an enduring power of attorney for a member to be a trustee (or director of the corporate trustee of the fund) on behalf of the donor. This is one of the very unusual situations where someone can be a member of the fund but not also a trustee.
It can be critical in making sure the SMSF continues if something happens to the donor (member) and they can’t be a trustee any more but still have money in the fund.
In short, anyone who has an SMSF should also have an enduring power of attorney. Couples often have them in favour of each other. That’s fine. But have one.
Death benefit nomination
Review your death benefit nominations. These are instructions to your SMSF trustee as to what you want to happen when you die. Be very careful of just signing standard templates without fully understanding what they mean and the implications for your estate planning.
Bear in mind, for example, that a validly completed binding death benefit nomination is – true to label – binding. It means your super will be dealt with exactly as you’ve stated even if that’s not the best approach for your family. That’s fine if you have thought about it with the same degree of care as you would with your will.
Some common mistakes, for example, are blanket binding nominations to the estate when actually it can be more tax effective to take a spouse’s super as a pension within superannuation. Or nominations that split your super between your two children but make no provision for what should happen if one of those children pre-deceases you. Or forgetting that estates don’t pay the Medicare levy but individuals do – meaning that it’s often more attractive to leave super for adult children (who generally pay tax on a parent’s super) to them via the estate.
These are just a few of the many factors to be weighed up when thinking about binding nominations. It’s worth getting proper estate planning advice before signing anything binding.
Finally, review the fund’s investment strategy documentation. Of course, most people with SMSFs are thinking about how their super is invested all the time. But documenting that careful consideration is also critical.
The ATO (and therefore auditors) are giving this aspect of the fund’s record-keeping even more scrutiny than usual. So get ahead of the game and review exactly what is documented about the fund’s investment strategy, whether it gives enough detail about the issues the trustee has considered and whether the fund is actually investing in the way the documentation says it is.
This article was first published in the Australian Financial Review 22nd December 2021.