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How to avoid a Self Managed Super Fail.

Self-managed super funds are very popular. Especially for people who want to have greater control and transparency. But not every SMSF works to its full potential. To help you make the most of your SMSF, here are 5 things you really need to think about to avoid your fund turning into a flop.

Self managed doesn’t mean D.I.Y.

You don’t necessarily need to manage an SMSF yourself, in fact most people don’t have the time, interest or experience. Most functions can be outsourced to help members achieve your goals. What you really want is a superior superannuation structure that provides ultimate control combined with professional advice and an investment service that is ‘hands-off’.

Don’t set and forget your investment strategy

Trustees are required to appropriately document and adhere to an investment strategy to meet their obligations. This should be reviewed regularly as the document they execute must reflect how you invest. Where market movement has put SMSF investments outside the current documented investment strategy, trustees have two choices: sell appropriate assets to bring the actual investments within the current documented investment strategy of the fund; or amend the investment strategy document to reflect the changed circumstances of the SMSF’s investments.

Have you chosen the right investment vehicle?

An SMSF can perform like a Formula one racing car, but many people fail to get it out of second gear. Investing your superannuation money into predominantly pooled, unitised investment structures such as managed funds, really isn’t making the most of what an SMSF can do. In fact, you could just be taking on ongoing administration costs for no real benefit. SMSFs have all the bells and whistles. If you have an SMSF, you may as well make the most of what it allows. An SMSF can be the perfect structure for those that want a tailored approach to the management of their retirement capital. It can help you to minimise tax and maximise franking credits. And of course, there’s more clarity because you are able to see exactly what you own.

Do you have a succession plan in place?

Most people understand the importance of having a Will and planning for death, but often don’t plan for loss of capacity. SMSF Trustees have ultimate control and make significant decisions about their funds. Typically, If an SMSF member loses mental capacity, they can no longer be a trustee of their Fund or a Director of the Corporate Trustee, putting the complying status of the SMSF at risk. This could mean that the member and their super balance is forced out of the SMSF upon losing capacity. Make sure you have a validly executed Enduring Power of Attorney.

Were you aware that your superannuation benefit is not covered by your Will? Make sure you’ve got a Binding Death Benefit Nomination (BDBN) in place. Because a BDBN determines who the super benefit is paid to, and how it is paid, it is an important way to enforce your wishes, even in the event of an estate challenge. Note: Your EPOA and BDBN should be professionally drafted by lawyers.

Has your rule book been updated?

The trust deed for a self-managed superannuation fund (SMSF) is the rule book for what can and can not be done in an SMSF and how the trustee deals with super entitlements on the death of a member. It is extremely important so make sure it’s up to date. Has your deed been updated to account for changes in legislation. – Pre-2012 SMSF Deeds in particular contain clauses that fail to deal with issues such as allowing non-lapsing death benefit nominations. Significant changes to super legislation were made and came into effect in 2017. Trust Deeds should be reviewed and updated if necessary to ensure compliance and provide maximum flexibility to members and their advisers to implement the changes.

If you want to know more about SMSFs and how they can help you to take greater control of your investments, talk to an SMSF specialist at Inner west SMSF.

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