SMSF TV - Membership, trusteeship and control of a SMSF
Hi, I'm Grant Abbott and I'm from SMSF Strategies and today we're going to be talking about trustee, acting as a trustee. As many of you be aware is that if you become a member of a self-managed superannuation fund, you are required to be a trustee, whereas I have pointed out in numerous of other videos, a director of a special purpose corporate trustee. And it's all very well to come in and take those responsibilities, be a member, effectively, though, you have to understand exactly what you are getting into.
I've talked about it again before but if you make a mistake as trustee, you can be held to be personally liable and up for quite serious fines and damages if you do a simple slip-up such as breaching a rule in the Trust Deed. For example, you may well be a trustee in a self-managed superannuation fund and you want to undertake borrowing, you found a great little property just close to you, good investment property, got a five or six per cent yield. You've decided you've got a 20 per cent deposit sitting inside the self-managed, you're about to make an offer, you go to the bank, Westpac or NAB, they've given you the tick of approval, you've gone up to your relevant loan limit, everything is ready to go, and you decide to then go out and invest in a property, you set up a bear trust which we will talk about a little bit later on in order to facilitate the borrowing and then you go and make an offer, put a deposit down and you believe you are off and running.
Now here is where the problem starts, is then for the bank to credit the borrowing, you've got to make sure that built within that Trust Deed is not only the ability to carry out the borrowing but the Trust Deed to have a lot of other powers, the power to act as custodian, the power to borrow, to give bills of exchange, to give a whole lot of other stuff. What will happen is your Deed is required to go to the legal department of the bank who will then vet it. Now here's the first thing, if it's pre-2007 Deed you are basically up against it. The banks are going to come back and say you can't do that Deed, you need to upgrade the Deed. And upgrading rules isn't very difficult, we do it all the time at SMSF Strategies, it's simply a process of looking at the existing Deed, extracting the old rules and putting in a brand new set of SMSF strategies, superannuation rules in there to run that fund. And then the trustees have all the benefits, the powers and the strategies that is sitting there in that SMSF Strategy trust deed and rules to allow them to really run their fund to the best of their ability.
Now one of the things that we have to look at is, as I said, with the borrowing. We've also got to start to look at, what I believe is probably one of the most important features of a self-managed super fund, is who is going to be a member. Now it's all very well for us to have mum and dad as members, but really there is an opportunity under the current laws, although they may well be changed under the relevant reviews, at the moment to have four members in the fund. I strongly suggest that you start to bring your children in the fund. In fact many families these days, and my family is one of them, where I have a blended family, myself and my wife, Marita, we have children from different marriages; we've elected not to have one fund but in fact two funds. Both Marita and myself are in one fund with one set of children and we are in another fund, again, with another set of children; it really makes a lot of sense to do that sort of thing. These are true family superannuation funds.
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