SMSFs – 5 More Benefits To Having Your Own Superannuation Fund

In a previous post (“SMSFs – 5 Big Benefits To Having Your Own Fund”) we looked at some of the benefits of having your own superannuation fund.  But there are more than just 5 benefits.  Here are another 5 to consider…

6. Flexibility In The Payment Of Death Benefits

The trust deed can give the trustees the power to pay any death benefit as a lump sum, a pension or into a testamentary trust.  This means the best course of action can be decided on at the time of death, which can save significant amounts of tax.  Death benefits can be paid in any or all of the following ways:

• As a lump sum or pension to someone who is financially dependent on the member
• As a lump sum or pension to someone who has an interdependency relationship with the member
• As a lump sum or pension to the members spouse or dependent children (to age 24)
• As a lump sum to the non dependent beneficiaries or the members estate

If the death benefit is payable to a non dependent, the taxable component would normally be subject to tax between 16.5% and 31.5%.

For a death benefit to be paid to a testamentary trust, it must first be paid to the member’s estate.  When paid to the member’s estate the death benefit will be tax free to the extent that a defined dependant is expected to benefit from it.

If the testamentary trust is a discretionary trust and it is possible to distribute to a non dependant, the death benefit inherited by the testamentary trust will be subject to tax.

For the death benefit to be inherited tax free by the testamentary trust, the testamentary trust’s beneficiaries must all be tax dependants of the deceased.

7. Protecting Assets Against Disaffected Family Members

A binding nomination can be changed or reaffirmed every 3 years or a trust deed can allow for a non-lapsing binding nomination as long as the beneficiary is a SIS dependant. The nomination can be challenged by a disaffected family member under Family Law provisions.

To overcome this, the SMSF trust deed can instruct the payment of death benefits in exactly the manner that the deceased member determines, subject to SIS regulations.

For example, the trust deed can exclude a certain person as a beneficiary or could stipulate that the trustees pay a death benefit to two of the deceased member’s children but nothing to a third.  In this case it would be much more difficult for the third child to challenge the trustees than if this were just part of the will.

A public offer fund, on the other hand, cannot alter its trust deed for an individual member. The trustee has the power, unless a valid binding nomination exists,  to decide who gets what from the deceased member’s superannuation balance subject to SIS rules.

8. In Specie Contributions

Subject to certain investment rules, some assets can be contributed to an SMSF in specie instead of making cash contributions.  Examples of such assets include public company shares, business premises and units in widely held unit trusts.

9. Cost Savings

Depending on individual circumstances, significant cost savings can be achieved compared to other types of superannuation funds.  This is because normal superannuation funds typically charge administration fees as a percentage of assets invested rather than on the actual time spent on administration.

For example, a $300,000 portfolio managed by an SMSF with an all inclusive administration and trustee cost of $2,100 per annum would incur lower costs than a typical industry wrap platform.  The cost advantage of the SMSF increases further the bigger the portfolio and the potential savings pass straight to the members.

10. Business Structures

It is possible to link the tax concessions available through superannuation with other business objectives or family considerations.  For example, an SMSF has maximum flexibility to allow it to purchase your business premises.  Market based rents will have to be paid, but significant tax savings can be achieved due to the concessional rate of tax that applies within superannuation.

Used correctly, a SMSF is a powerful and flexible vehicle to create wealth and build your retirement portfolio.  For more details, take a look at our new special report “New Ways For High Net Worth Individuals And Business Owners To Build Wealth Tax Effectively With A SMSF”.

To get your FREE copy contact us by clicking here.