Case Study: Meet Jill & Ben, aged 52 & 54

Case Study: Meet Jill & Ben, aged 52 & 54

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Like many other baby boomers, Jill and Ben are the beneficiaries of their parent’s estate.

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.

Getting Started

Like many, Jill and Ben decided to ask their friends for a referral to a Financial Adviser, and were introduced to an Adviser at Prime Financial Group.

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.

*$20,797 plus 37% of amounts over $90,000 up to $180,000
Assumptions:
• Medicare levy has been ignored for the calculation;
• Jill and Ben have nobody to make tax effective distributions from the family trust other than themselves.

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.

However, when Jill and Ben are in full pension mode, all income and capital gains in their fund will be entirely TAX FREE.

Further, their Investment Adviser recommended a portfolio with direct shares which are fully franked, meaning, the income will be distributed in the form of dividends. Assuming Jill and Ben have a total super balance across all superannuation of $1.6 million or less, once in pension mode they will receive a full tax refund of the imputation credits.

 

Jill said to Ben, “It’s a no-brainer.” Prime were engaged to establish and administer the fund.


The Prime SMSF Solution

Prime has a specialist SMSF division who assisted with the establishment of the SMSF using a corporate Trustee structure.

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.

Sole purpose

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.

Trustee duties

Trustees must at all times:

  • Act honestly in all matters concerning the fund
  • Exercise skill, care and diligence in managing the fund
  • Act in the best interests of all the members of the fund
  • Ensure that members only access their super benefits if they have met a legitimate condition of release
  • Refrain from entering into transactions that circumvent restrictions on the payment of benefits
  • Ensure that personal money and assets are kept separate from the money and other assets of the fund
  • Take appropriate action to protect the fund’s assets (for example have sufficient evidence of the ownership of fund assets)
  • Refrain from entering into any contract or do anything that would prevent trustees in property performing trustee functions
  • Allow all members of the fund to have access to information and documents in relation to the fund.

SMSF investment strategy

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:

  • The risks associated with the fund investments
  • The likely return from investments, taking into account the fund’s objectives and expected cash flow requirements
  • The liquidity of the fund’s investments having regard to the fund’s expected cash flow requirements
  • Whether the trustees of the fund should hold insurance cover for one or more members of the fund

Partnering with Experts

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:

  • The SMSF trust deed (governing rules)
  • All minutes of meetings and member applications
  • Death benefit nominations
  • ATO trustee declarations
  • A sample Investment Strategy Template

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:

  • Preparation of the financial statements and tax return;
  • Engagement and management of an independent auditor;
  • Preparation of fund minutes and associated compliance documentation as required.

 

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.

SMSF team

Olivia Long

Managing Director – Strategy & Operations, SMSF

Contact Olivia

Karen Dezdjek

Director – Wealth & Superannuation, SMSF

Contact Karen

By | 2019-07-26T13:24:36+10:00 July 25th, 2019|Superannuation incl. SMSF|0 Comments