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Financial services law firm DBA Lawyers has highlighted traps and tips for SMSF establishment.
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DBA Lawyers outline SMSF traps
09 January 2015
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DBA director Bryce Figot recently outlined some practical tips to assist the SMSF administration process and reduce potential problems for the life of the fund. He also highlighted misconceptions that can occur at the outset.
In naming an SMSF, Mr Figot suggested that while there are essentially no restrictions, 'less is more'.
For example, a fund could have a name such as The John Smith Family Executive Superannuation Fund, Mr Figot said.
“However, that name will need to fit on bank statements in respect of bank accounts that could have significant dollars in them! The same can be true in respect of other asset registers that allow you to register the SMSF’s name,” Mr Figot said.
“Also, many bank computer systems will not allow such a long name. Instead, they will truncate the name. Accordingly, that can create uncertainty as to the true name of the SMSF or even, in an extreme situation, it can create uncertainty as to whether there are multiple SMSFs.”
Mr Figot also suggested avoiding numbers in the name, despite the temptation to include numbers in situations where there are multiple SMSFs.
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“Assume that certain clients have done just this and then a tenant of [a] commercial property in the second or third super fund sues the landlord, ie. the SMSF trustee. If the name of the SMSF is ever disclosed to the tenant, it starts to suggest that there are other SMSFs with other assets, ie. that the plaintiff might have found a wealthy defendant.”
Adding numbers to a name also causes difficulties if the SMSF is wound up, Mr Figot said, since it may create confusion if one number in a sequence is missing where there are multiple funds.
In addition, as widely recommended by the ATO, Mr Figot said a corporate trustee is an ideal option and should be used from the point of establishment.
He noted that while some plan to implement a corporate trustee when the fund has accumulated more assets, the benefit of setting up a corporate trustee from the beginning is “larger than many realise”.
The legal documentation necessary to change a trustee is often incorrectly prepared, even by those who have been advised by a lawyer, Mr Figot said.
“Consider, for example, the case of Moss Super Pty Ltd v Hayne [2008] VSC 158. This case involved an SMSF that had had a change of trustee. The validity of the appointment of the new trustee was challenged on the basis that the existing deed required that a certain person sign the appointment documentation in one capacity and not in the capacity that that person actually did sign,” Mr Figot said.
“[Justice] Byrne held that the challenge identified a legitimate flaw in the purported change of trustee and accordingly the entity that thought it was the new trustee was not. This highlights that any change of trustee may potentially be invalid.
“If, however, a company that was registered for the sole purpose of being a trustee is used right from the SMSF’s commencement, odds are no change of trustee will ever be needed, and thus there is no opportunity to make any mistakes.”
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