But necessarily there have to be legal and financial controls to avoid abuses as far as possible. These, together with tax penalties if mistakes are made, mean that SMSF trustees need to take care when establishing and running an SMSF.
Some people are happy to manage all aspects of their SMSF, dealing with all paperwork, making all investment decisions, and preparing their own accounts. If they do this, they are independent from all except the professional auditors for the annual audit and from the Australian Tax Office (ATO).
Most people prefer to engage professionals to do some or part of the work. In Australia there is quite an industry in offering SMSF services - lawyers, investment advisers and accountants.
I am a barrister practising in Australia and I am one of those people who manage all aspects of my SMSF. This is of professional interest to me. My trust deeds, corporate constitution and guidance packs are on sale on this site. My aim is to provide these documents (and if necessary to provide further advice) at a reasonable cost.
This article examines the legal framework within which SMSFs operate.
This means that an SMSF is necessarily a trust. In lawyer's language, in a "bare" trust the trustee would hold the "legal interest" in the assets and the fund's member or members would hold the "beneficial interest" in those assets. Or sometimes lawyers say that the trustee holds the assets in law, while the member holds them in equity.
However, a superannuation fund is different from a bare trust because the member's right to the assets in the superannuation fund is so heavily circumscribed by statute that it has been For example:
Kirkland  FCA 684 that the member has no interest in the assets of the fund until the happening of an event entitling the member to receive the benefit. Instead the member has an interest in the fund itself, being a contingent interest in the underlying assets.
It is possible for an individual to have more than one legal personality. So the same person can be two legal entities at the same time in different capacities. This means that an individual can be a trustee of a fund in one capacity whilst also being a member of the same fund in another capacity.
Australian law does not permit an SMSF to have only one individual trustee. There must be at least two trustees (up to a maximum of four). Each member of the fund must be a trustee (unless disqualified or below the age of 18). No member can be an employee of another member unless related. In single member funds it will be necessary to have an additional trustee. This can either be a relative of the member (including a spouse) or anyone else provided they are not the member's employer.
If the fund has a corporate trustee, each member of the fund must be a director of the company (unless disqualified or unable to act as director for other reasons). No member can be an employee of another member unless related. In single member funds the company can be controlled by the fund's sole member although there can be second director. If there is, that person can either be a relative of the member (including a spouse) or anyone else provided they are not the member's employer.
Here are some typical permissible SMSF structures with a corporate trustee:-
A person can be a member of as many funds as they wish.
If you are in doubt as to whether to use individual trustees or a corporate trustee for your SMSF you may find this article useful.
27 February 2017
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