There are many advantages of Self-Managed Superannuation Funds (SMSFs) when compared to other forms of superannuation, including greater freedom and control, tax benefits and cost effectiveness, among others. If you are thinking about setting up a new SMSF, there are a few questions that you will need to consider first.
What are Self-Managed Superannuation Funds?
A Self-Managed Superannuation fund (SMSF) is a way you can save for retirement. SMSF’s are different to other super funds because they are run by you, for you and other members of your SMSF. It is a regulated superannuation fund which has four or fewer members. Those members are typically family members or close associates. The members of the fund are also the trustees of the fund (or directors of the trustee company) and therefore have the freedom – but also the responsibility – to make all of the decisions relating to the fund.
An SMSF will give you more control over your superannuation and retirement planning, but it is important to understand the responsibilities that come with being a trustee.
What decisions can the trustees of an SMSF make?
The trustees control the fund within the relevant legislation and determine:
- The SMSF investment strategy
- The type of retirement planning strategies to undertake
- The type of retirement income (pension) to use for its members
- The details of the super fund’s trust deed
What help do the trustees need to perform their duties?
Although the final responsibility for management of an SMSF lies with the trustees, they may engage the services of various professionals to assist them (and usually do so). Those services might include accountants, auditors, financial planners, lawyers and administrators.
Considerations when using an SMSF
- Choice of Fund Investments – control and flexibility over your super. An SMSF allows you to construct your fund’s investment strategy and enjoy more investment options. The power of choosing investments for the SMSF resides with the trustees, however care needs to be taken to ensure that the trustee meets the relevant superannuation laws in terms of investment choice. Generally speaking though, an SMSF can invest in a wide range of investments, including direct shares, overseas assets and property as well as the traditional asset classes normally associated with super. But as the trustee, you hold all of the responsibility for your decision.
- Estate Planning – looking after your family: An SMSF can be a flexible, targeted and tax-effective vehicle to provide lump sums or income streams to a member’s spouse and/or eligible children when the member dies – and it lets the members control the process. However, there are particular estate planning challenges that may arise with the operation of an SMSF.
- Cost Effective Administration and Reporting. The cost of managing your own superannuation fund can be lower than a traditional retail fund, depending on its size, the complexity of the investments and how it is managed. You can also pool your super with other fund members to create savings. For larger funds, there can be significant cost advantages. However, as trustee you are responsible for ensuring the administration and reporting is completed to the appropriate standards.
- Potential Tax Advantages. An SMSF provides a flexible platform within which to manage the members’ taxation liability. This might, for example, be through selective investment of high franking dividend stocks, capital gains tax minimisation through the transfer of assets to pension phase where they become tax free, as well as other legal tax management strategies. These features are generally not available in retail superannuation funds.
- Family Super Fund. An SMSF provides the opportunity for up to four family members to belong to the same fund. A Family Super Fund allows the aggregation and investment of a family’s superannuation funds and they provide a pool of assets to look after family members including children, at the time of a member’s accident, sickness, permanent disability, death, pre-retirement and retirement. Family Super Funds also allow you to consider how you might pass down the benefits of the fund to your family by way of estate planning.
Are you thinking about setting up and running your own SMSF?
Blueprint Wealth provides a comprehensive approach to helping you set up and run your SMSF. We pride ourselves on delivering a complete SMSF package to you for every service that you will need to run a successful SMSF. Contact us to book an initial consultation with one of our advisors.