The decision to start your own self managed super fund should be a relatively easy one for most people.
The obvious benefits are …
– Cost: You already pay fees to your retail fund whether the fund makes or loses money. SMSF’s costs are fixed and you can share the costs with up to 4 members of the fund (the ATO will allow up to 6 members in a SMSF from 2019).
– Choice: You can decide what you invest in. Shares, property, crypto, precious metals etc. Retail funds are stuck investing in the stock market.
– Control: You own the assets in your super, not a fund manager or big company that takes their cut.
One main reason why someone wouldn’t have an SMSF used to be the amount of money it costs to set up and run. You used to need well over $100,000 in your super to make it worthwhile because it was common for it to cost $5,000 to $10,000 a year to run. But now with costs being much less, (under $4,000 first year including set up costs and under $2,000 for each following year) it can be a viable option. People interested in SMSFs should consider the costs to run the fund against what they are currently paying and decide if being able to invest directly in other asset classes is worthwhile for them.
The main area where people lose motivation in setting up their own SMSF is the confusion as to whether to set up as an individual trustee or corporate trustee SMSF.
What does this mean?
What is a trustee anyway?
What is the difference?
Seems too complicated.
In the next few minutes we will walk you through the differences in simple terms to assist in the decision as to which type of self managed super fund is right for you. Please be aware that New Brighton Capital does not offer financial advice, so you should do your own research outside of our site to determine what is right for you in your circumstances.
What is an SMSF?
A self managed super fund (SMSF) is simply a vehicle that allows you to control and invest your superannuation instead of going through a retail super fund like AMP, IOOF or any other normal retail super fund. The “self managed” part means you decide how to invest your money but you still get an accountant to do all the paperwork.
When going into business you can create a partnership or a company. Both allow you to do business, but their structure is a little different. Similarly, when starting an SMSF, you can start an individual trustee or corporate trustee SMSF. Both allow you to run the SMSF with up to 4 people but the structure of each is a little different.
So what is a trustee?
A trustee in an SMSF is the person or company who is responsible for investing the money.
An SMSF with individual trustees means the fund is run by individuals. An Individual trustee SMSF has trustees at the top, the SMSF in the middle and the members underneath.
It is important to understand that even though each member is a trustee, legally the trustee and the member are seperate because the trustee is there to act for the member. Think of “you the trustee” as the wise investor thinking 20 years ahead and investing for “you the member” who is just going about his daily business adding to the retirement savings account over time.
An SMSF with a corporate trustee means the fund is run by a company. The company is just an additional layer between you and the SMSF.
You still decide how to invest the money but you are not the trustee here, the company is. You are the director of the company.
The corporate trustee is more expensive to set up because you need to set up the SMSF and the company that holds it.
But the advantage of this is that you can swap people in and out easier and without a tax event if you want to add your kids or if there is a death of one of the members / directors.
The individual trustee is less expensive because you just need to set up the SMSF.
But the disadvantage is that if someone dies and passes on the assets, then the assets have to be sold and leave the SMSF. This is more work and you might have to pay tax on the sale of the assets if the beneficiary is not a dependent. One other disadvantage which lawyers love to mention, is you are personally responsible for the fund but if you have a corporate trustee the company is responsible. This is only an issue if you break the superannuation laws when running your fund. This won’t happen if you act in the best interest of the members of the fund.
You can always start off with an individual trustee SMSF and set up a corporate trustee SMSF at a later stage when it makes sense like when your kids are grown up and no longer dependents.
We also recommend watching this video from the ATO explaining the differences.
If you have any questions or are interested in setting up your own SMSF feel free to check out https://newbrightoncapital.com which has everything you need including a 10 step guide to setting up and running your own SMSF.
Michael White | CEO
Tel.: 1300 264 022