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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.
Now to get the children in as members, great, if they are under age 18, effectively they
can’t act as trustee or director of a corporate trustee, so, effectively, what happens is
you as parent take their place, provided again – and we should understand this – the
Trust Deed allows us to do that, or if we are running a corporate Trust Deed, the minimum
articles of association allow us to the do that. And, of course, you can expect that
the SMSF Strategy Trust Deed, the Memo and articles for our special purpose corporate
Trust Deed allows that. So the children automatically are looked after by their parent.
Now if the children are older, once they turn 18, then automatically they are required to
become a trustee or a director of a corporate trustee. Failure to do so means the fund is
no longer a self-managed super fund and within a six month period, if the trustees haven’t
got rid of that fund or elected it to be a small apra fund where we get an external trustee
such as Perpetual or Permanent Trustee to take over, that fund is up for quite significant
penalties and potential gaol sentences for the trustees of the fund; so we don’t really
want to go there.
So once our children become trustees or directors of corporate trustee, it’s great to have
them in there; again it’s fantastic, we can look after – if the children get sick
we can start to pay out benefits to them, we can look after them in a myriad of ways.
But, and this is the big but, it’s no good having them in there if your trust deed says
that they get the same vote as you; it doesn’t make sense. Particularly as you are running
along in the stream of life, if they’re 18, 20 or 40, 50; it doesn’t make any difference,
they’ve got one vote to play on the table, the same as you, one vote; it seems okay,
but it’s when there’s things that happen, divorces, when you want to make different
investments, when you go through the borrowings, when someone dies in the fund or someone becomes
incapacitated; when someone is separated or there’s a family law settlement, that’s
when the real fun starts. So it’s absolutely crucial to have a strategy that doesn’t
give every trustee the same power of votes. A lot of the smarter deeds in the market have
certainly copied the SMSF Strategies Trust Deed whereby every trustee has votes based
on their account balance. A) in my fund I might have $600,000 in my account balance
and my accumulation fund, that means I’ve got 600,000 votes when I come down to the
voting table. We’ve got a corporate trustee so it means when we have a director’s meeting
I’ve got 600,000 votes. And Marita, she’s only got around about 100,000 votes and our
children, effectively, have got virtually no votes at all. We’ve been making the contributions
on their behalf, all of them are under 18 and getting that co-contribution from the
government in one way, shape or form. It’s really worthwhile at having a look at the
ability of control.
Control also plays its part when we have a look at estate planning. We’ve taken it
one step further in the SMSF Strategies Trust Deed and this is crucial to look at, upon
death or even incapacity, your legal personal representative or your executor comes in,
takes your place as trustee of the fund and then starts to look after the benefits as
you have put down wishes for those benefits. It may well be through an SMSF Will or an
SMSF living Will, but effectively the trustee is in there working on your behalf. And I
think that’s absolutely crucial that the most important thing is that when we do set
up the fund, make sure the Trust Deed allows the people in power, the right people to maintain
control and think of control when it blows out in different areas.
Trust Deed control absolutely crucial, Grant Abbott from SMSF Strategies signing off.