The future is unpredictable. It would have been great if we had a crystal ball that could allow us to predict the necessary steps to ensure a prosperous course of life, but we don’t. And while planning our future, one of the things we can rest assured that we will have, is a good pension fund. In the world of today when there are numerous options regarding pension funds, one of the most popular and best ones is the Self Managed Super Fund (SMSF).
What makes the SMSF so popular is its flexible nature which allows the trustees to decide the amount of money going into their fund and regulate how they will spend their savings in the future. However, the perk of having personal control comes with the responsibility to ensure that the fund complies with all the laws. That’s why most people consult an expert for advice on the more complicated legal parts of an SMSF set up.
Before joining the large SMSF club of content members, the first decision you need to make when setting up the fund, is choosing between an individual and a corporate trustee structure. The individual trustee structure requires two to four members who are trustees at the same time. Meaning, each of the members can make decisions and can be held accountable if the fund breaks any laws. The good thing about it is that it has low annual fees and doesn’t involve a lot of bureaucratic responsibilities.
If you are an owner of a company, you can use your company to act as a trustee for your SMSF set up and establish a corporate trustee structure. This is also a convenient solution for individuals who can’t find more people to start a fund. The SMSF laws do not allow for single-member funds unless there’s a company acting as a trustee. However, keep in mind that this is the more expensive structure option because you’ll have to pay charges for registering a company.
Once you’ve settled for a structure type, the next step is to come to an agreement about the amount of contributions going into the fund during the accumulation stage. The ATO has put strict limitations on how much a member can invest in the fund for each financial year in the form of contribution caps. To avoid breaking any laws and paying additional taxes, make sure you know exactly what your contribution range is.
The next step is developing a solid investment strategy and present it in the form of a written document signed by all members. A good investment strategy is the one which uses the diversification method (investing in a range of assets and asset classes) which reduces the risk of financial loss.
When all members have agreed on the structure’s type, the amount of contributions and the investment strategy, it’s time to formalize the fund by signing a trustee declaration. This declaration states all the duties, powers and investment restrictions of each member. All new members must sing this declaration within 21 days of becoming a trustee.
Although it might look simple, there are many other unique rules governing the SMSF set up. In order not to get lost in a complex web of bureaucracy and laws, consider hiring a reliable SMSF expert that can help you with the SMSF set up.