Jill (aged 52) and Ben (aged 54) have recently inherited a total amount of $2 million.
After paying off the balance of their mortgage, Jill and Ben have $1.5 million to invest.
Their Accountant indicates a Self Managed Super Fund (SMSF) provides the most tax-effective vehicle in which to invest so they make the decision to establish an SMSF.
The Financial Adviser conducted an assessment of Jill and Ben’s financial situation and provided them with a recommendation to establish an SMSF. They were then presented with a Statement of Advice (SOA).
The SOA included a recommendation to run the SMSF whilst maintaining existing superannuation arrangements as their existing superannuation accounts have life and Total & Permanent Disability (TPD) cover attached.
The main benefit of an SMSF is the tax benefits it provides compared to other investment alternatives.
Jill and Ben earn just over $100,000 each.
The following table explains the difference in their tax position if they invest personally, compared with other investment alternatives.
Given the attractive tax environment an SMSF provides, there are limits on how much you can contribute into superannuation. Based on these limits, it will take 8 years before they can contribute the entire amount.
Jill said to Ben, “It’s a no-brainer.” Prime were engaged to establish and administer the fund.
Jill and Ben had an initial consultation with Karen Dezdjek, Director – Wealth & Superannuation SMSF, who explained their obligations as trustees of an SMSF.
A trustee of an SMSF must keep informed of changes to legislation relevant to the operation of an SMSF, ensuring the trust deed is kept up to date in accordance with the law and needs of the members. Karen explained the following key principles when running an SMSF.
It is the trustees responsibility to ensure the fund is only maintained for the purpose of providing benefits to the members upon their retirement (or attainment of a certain age) or their beneficiaries if a member dies.
Trustees must at all times:
It was explained that by law, SMSF trustees must prepare, implement and regularly review an investment strategy having regard to all the circumstances of the fund, which include, but are not limited to:
Jill and Ben had a good understanding of their duties as trustees but decided partnering with an SMSF Specialist to guide them on their journey provided them peace of mind.
Prime provided Jill and Ben with an SMSF Starter pack. It contained:
Karen walked Jill and Ben through the documents explaining them and their purpose and encouraging them to seek advice where relevant (death benefit nomination as part of overall estate planning).
The bank account was then opened and Jill and Ben’s SMSF was up and running.
One of the key benefits of the Prime SMSF solution is that funds are administered daily, providing Jill and Ben with online reporting specific to self managed super funds. Prime obtain bank statements, contract notes and other fund information directly which means they don’t have to burden themselves with the day-to-day bookkeeping for their fund.
Prime monitors the fund’s compliance on a regular basis to assist Jill and Ben with their roles and responsibilities in running the fund, and ensures they are maximising all SMSF strategies along the way.
At the end of the financial year, Prime handles:
Jill and Ben are happy dealing with an SMSF Specialist for the fund administration and accounting, allowing them to focus on the fun part of running an SMSF – making money! If you would like to discuss how Prime can help with your SMSF, or have a family member or friend who would be interested, please click here.
Alternatively, you can download our SMSF brochure here.
Olivia Long
Managing Director – Strategy & Operations, SMSF
Karen Dezdjek
Director – Wealth & Superannuation, SMSF