Superannuation is fast becoming a large asset for most people, but many ignore the simplest requirements, like succession, compulsory payouts on death, insurance in the Fund, and an appropriate investment strategy.   The ATO hasn't.

Wills

Super is a trust and is a function that needs to be dealt with separately from a Will.   Many assume it forms part of their estate.

In terms of an SMSF, the trustees of the fund make a determination as to where the super should be paid, taking into account the beneficiaries and their financial situation.   Even in public super funds the situation is the same, but the trustees don't know your intentions and still decide where benefits will be paid.

Two simple strategies; ensure there is a Binding Death Benefit lodged with the Fund, or appoint a child (over 18) or independent person as a director as they should act in your interests.

Cashing Out

A member's benefits must be cashed as a lump sum as soon as practicable after the date of death.   A pension can be made to revert to a beneficiary.

This becomes difficult when an SMSF does not hold sufficient cash.   A Fund asset may have to be sold to meet this requirement, which may be difficult or costly if it   is property or equities in a falling market.

Insurance in the Fund

One way of providing cash is for the Fund to put death or incapacity policies in place.   (The Fund owns the policy and insures a specified beneficiary;   the premiums are paid by the Fund).

This is a complicated topic but it is a good way of having cash available for a possible payout (see Cashing Out).   The Super regulations require the trustees to consider insurance.

Investment Strategy

The ATO has just released guidance for trustees around SMSF investment strategy.   The old style 'broad sweeping statement' of asset ranges (eg., 0% to 100%) is not a valid strategy.   The investment strategy must be a plan for making, holding and realising assets consistent with the Fund objectives and retirement goals.

Where the Fund is invested mainly or in one significant asset or asset class, the ATO requires documentation that the trustees had considered the risks associated with a lack of diversification and addressed those risks (see Insurance).

Investment strategy needs to be considered at least annually, and perhaps after events such as a market correction, admission of a member, and when a pension is commenced.   The ATO requires that auditors check that an investment strategy is in place, the investments are in accordance with that strategy, and the strategy has been reviewed during the year.

Superannuation needs to be managed responsibly and the obligations understood by the trustees.   The ATO has warned that it intends to ensure trustees carry out their duties, and if not, it will impose fines or close the Fund.   Also, these four issues in particular need to be addressed to ensure you get the maximum performance and benefits from the Fund.

If we can assist in any of these areas, please ask us.   None of the matters are rocket science (which is why we understand the issues), and they can be fixed with some due diligence and discussion of alternatives.   It's is a lot easier to deal with the issues now than when the auditor qualifies the Fund (and brings the ATO down on you) or a payout has to be made.   It's your money, ensure it is handled wisely.