Thursday, June 9th, 2011
A word from Joy…
Is your SMSF operating like a Falcon or a Ferrari?
Many people who operate a SMSF never realise the true potential of what is arguably the most powerful retirement vehicle in Australia. In thinking about how to best convey this message to trustees, an appropriate analogy would be to look at the issue in “motor-vehicle” terms.
Most SMSFs fit into one of the following four types of cars:
The “Datsun” SMSF
An old fund, whilst not necessarily neglected, it has limitations in its ability due to age and advancements in strategies. Likely to include account balances under $200k, however will include funds with considerably more. The members, through lack of knowledge simply don’t know that they can opt to upgrade their fund’s trust deed to take advantage of these new changes and improvements to super law.
The “Falcon” SMSF
The most common SMSF vehicle in operation. The SMSF ‘brand’ is strong, but the fund is running ‘production-line’ strategies for its members (e.g. salary sacrifice). Little or no understanding of the benefits of a range of other strategies that could apply to the members. More likely to fit into the $200k – $500k account balance, but does include some funds $700k and more.
The “Mercedes” SMSF
A growing breed of SMSF, in particular chosen after the members have given consideration to advice regarding strategies to benefit their overall financial wealth. Likely to include account balances over $1m, but actively seeking members with balances closer to $700k + with strategies including transition to retirement, transferring assets in super from a member (e.g. listed shares), and re-contribution strategies. Can see the benefits of advice to improve performance and safety (estate planning protection).
The “Ferrari” SMSF
The ultimate super fund vehicle. The fund has been designed as an intergenerational wealth vehicle, maximising its performance through contributions strategies, multi-pensions, reserves (including anti-detriment) and effectively transferring wealth with an SMSF Will (including through in-specie lump sums) as part of a complete SMSF estate plan. Likely to include SMSFs with an account balance of $2m+, but increasingly attracting members with lower balances due to some of the performance benefits available. Finely tuned car, finely tuned strategies tend to continue to attract members and the advisers offering these strategies.
Does your car need a service?
One of the most important aspects in running a car is to ensure that it is properly looked after and maintained. For most cars, this would be arranging for a ‘service’ every 6 or 12 months.
What should be a part of a SMSF “service” to ensure your fund is running at an optimal level?
- Ensuring the trust deed is current and up-to-date to take advantage of strategies as the law applies today.
- Ensuring that all statutory obligations are up-to-date with the Australian Taxation Office.
- Consideration of the contribution caps for each member, including the concessional (pre-tax), non-concessional (post-tax) and CGT cap (applicable with the small business concessions). Are there any assets outside of super that are allowed to be transferred into an SMSF and would be beneficial to do so?
- Reviewing benefit payment strategies, including transition to retirement, lump sum benefits, multi-pension strategies, etc.
- Ensuring that the members have carefully considered their estate planning requirements including the completion of an appropriate death benefit nomination dealing with their specific wishes/intentions in the event of death.
Subject to the type of fund you are operating, the service would potentially include a lot more than the above to achieve either a satisfactory or optimal performance for its members. You can obtain further information regarding the ‘health’ of your SMSF by taking advantage of Segue’s SECOND OPINION offer.
It is also important that trustees understand that advice on SMSFs can come in all shapes and sizes. Unfortunately, I have seen some SMSF advice that is the equivalent of putting ethanol fuel into a car that requires premium unleaded. You need to ensure that the strategies are the right fit for the members of the fund… you simply cannot add any ‘fuel’ just because you can get it with a discount docket.
