A self managed super fund, also known as a SMSF, is an Australian superannuation fund that allows its members to manage and ultimately gain funds once they have retired. Superannuation funds have been in existence for many years, but in more recent years, the Australian SMSF has seen tremendous popularity. In Australia, there are almost 600,000 SMSFs in existence, and the average balance is more than AUS$1 million. SMSFs represent about a third of the superannuation assets in the country.
Self managed super funds have gained their popularity due to the fact that the members of a fund have far more control over their investment than they do with any other type of super fund. Most super funds also cater to bigger groups of members, but the SMSF has a limit of four members at most. Each of the members act as trustee or they can appoint a company they direct to act as a corporate trustee.
The members of the SMSF have far more flexibility when it comes to investments, but they must fulfill the administrative duties that come with the increased control they have of their retirement funds.
Setting Up a Self Managed Super Fund
Once the decision has been made to start a SMSF, it takes five key steps to establish it. A SMSF takes commitment, as it needs to be managed, but in the long run, it can be beneficial for the members and their beneficiaries.
The first step is to establish the trust. The trust must have trustees, assets, identifiable beneficiaries and a committed intention to establish the trust.
The second step is to obtain the trust deed. This is the legal document which informs members about the rules of having a SMSF and the conditions under which it will operate. A qualified legal representative who knows the laws of superannuation should prepare the trust deed, which should ultimately be written with the trustees having maximum control and as much flexibility as possible.
The third step is for the members who are appointed trustees to sign the declaration. This declaration states that the trustee understands his or her role, which includes all of their duties, obligations and responsibilities. The declaration is available from the ATO and must be signed within 21 days from the time the trustees are appointed.
The next step is to lodge an election. This must be done within 60 days of starting the SMSF and it must be lodged with the ATO. This is the regulatory body that ensures the SMSF complies with the rules and entitles the SMSF to pay concessional tax if it complies. If the SMSF has not had an election lodged, it will be subject to high marginal tax rates.
Finally, the SMSF must have a bank account opened in its name. This is how the fund will accept various payments and pay out the various operating costs.