7 of the most common SMSF errors — part one

Self-Managed Superannuation Funds or SMSFs provide another avenue for people to create and manage their wealth. 

Unfortunately, like many other highly regulated financial tools, they can be quite complex.

In fact, there a number of common errors that people often make in SMSFs, which can be avoided with professional advice from the outset, of course.

Let’s take a look at some of the major mistakes and omissions that people make when operating a SMSF so you are less likely to be one of them.

1. Sole purpose test

Your SMSF must meet the sole purpose test to be eligible for the tax concessions that are normally available to super funds. 

What that means in simple terms is that it must be set up and operated for the sole purpose of providing retirement benefits to the members, or to their dependants if a member dies before retirement.

It’s vital to understand that an SMSF is a trust, but with special requirements and tax benefits.

The SMSF is administered by trustees who must include all of the members.

The main responsibility of a SMF trustee is to hold and invest the SMSF fund assets for the benefit of all the SMSF members for when they reach retirement or a condition of release.

Additional responsibilities include ensuring the SMSF is compliant with tax and superannuation laws to protect member interests.

This compliance will ensure that the fund is entitled to tax benefits, with the main ones being concessional tax rates on income and zero tax in the pension stage.

2. SMSF strategy

Another common mistake is not preparing a strategy for your SMSF. 

There must be a strategy, preferably in writing, that describes the investment plans that the SMSF will adopt in its quest to provide retirement benefits.

The strategy should be regularly reviewed to ensure it fits with the individual members needs as well as changes in their financial and personal environments.

It’s imperative that investment assets should never be purchased or used for the benefit of the member outside of the super fund.

As mentioned above, failing the sole purpose test can have serious financial consequences for both the fund and the trustees.

The strategy should also ensure appropriate reviews of the SMSF deed are undertaken to maintain compliance with current legislation and the needs of members.

3. Insurance

Another common omission is the consideration of insurance.

The thing is that the trustees must consider insurance as part of the SMSF strategy as a minimum requirement.

While there is no absolute need for a fund to hold insurance, there are many advantages for a member to do so.

A carefully researched investigation should be undertaken before deciding to include or ignore the SMSF’s insurance needs.

The reasons and supporting documentation, for either decision, should be maintained in the SMSF paperwork and made available if required to either the ATO, a member, or their dependants.

4. Binding Death Nomination

Do you know who owns the funds in a SMSF?

Many people incorrectly believe that funds in their super fund belong to them, but this is not the case. 

A member or their dependant/s are only entitled to the funds if a condition of release is triggered.

Therefore a member needs to make provision for what happens to their funds in the case of their death.

This is typically decided via a Binding Death Nomination or BDN.

For a BDN to be valid it must be in strict compliance with what is required in the SMSF deed.

That’s because any deviation from the deed renders it as a non-binding death nomination.

If that happens then it will be up to the surviving trustees to decide how to pay out the member’s death benefits.

As you can imagine, with multiple member funds this could be contrary to the member’s actual wishes.

The bottom line…

Any of the above can have a significant impact on an SMSF. 
That’s why you need to ensure you receive appropriate professional advice.

These issues — and others outlined in part two — can be resolved and corrected to ensure maximum SMSF benefits will be available in retirement.

At the end of the day, an SMSF is supposed to be a valuable financial tool.

Not one that is more trouble than it’s worth.

What about you?

If you’re a business owner, a professional or an established property investor why not have a chat with me about your personal circumstances.

You deserve your own private wealth advisor to create a Strategic Wealth Plan for your personal needs.

Click here now and find out how Metropole Wealth Advisory could help you.

Having a Strategic Wealth Plan means you’re more likely to achieve the financial freedom you deserve desire because we’ll help you:

• Define your personal, financial and business goals;
• See whether your goals are realistic, especially for your timeline;
• Measure your progress towards your goals – whether your investments or business is working for you, or if you’re working for it;
• Find ways to maximise your wealth creation;
• Identify risks you hadn’t thought of.

And the real benefit is you’ll be able to grow your wealth faster and more safely than the average investor and leave a legacy.

Here’s something you could do now!

Why not discuss your individual needs & let Ken Raiss, director of Metropole Wealth Advisory, formulate a Strategic Wealth Plan for you, your family or your business? 

Remember attaining wealth doesn’t just happen – it’s the result of a well executed plan so please click here and find out more about our services.

We offer you guidance and support that contribute to seamlessly combining the essential financial areas of your life.

Whether you are a business owner, a professional or a high-income earner we provide you with an individually tailored solution integrating the core disciplines of taxation, superannuation and property investment interwoven with finance, asset protection, succession and estate planning, personal risk insurances and philanthropy.

Using our depth of skills in these core disciplines, we adopt a coordinated project management approach and access other specialists as needed to further enhance our integrated advice solution.

Please click here to organise a time for a chat. Or call us on 1300 METROPOLE.

Disclaimer
This article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives. 

from Property UpdateProperty Update https://propertyupdate.com.au/7-of-the-most-common-smsf-errors-part-one/