Being an SMSF trustee, you reserve the freedom and choice to explore a plethora of investment options. While you make the most of these investment opportunities, the excitement should not blind you of the responsibilities and risk factors. Running the fund successfully happens to be a complicated task. It calls for financial and legal knowledge, calculated risks, and, of course, the assistance of professional accountants.

If you have made up your mind to become an SMSF trustee, check out the risks and responsibilities at the outset!

Responsibilities of an SMSF trustee

Managing an SMSF successfully calls for sheer expertise and financial knowledge. Walking in the shoes of a trustee, it is your responsibility that the fund adheres to all the prescribed norms. Getting it wrong at any point might lead to severe consequences. In case the fund anyhow breaches the norms, you might have to shell out hefty fines. Moreover, non-compliance might lead to criminal or civil proceedings. The tax authorities might impose penalties, depending on your shortcoming. Ultimately, the fund returns might get taxed not at the concessional 15% rate, but at the higher personal tax rate.

What type of expertise should an SMSF trustee have?

Being an investor, it’s easy to overlook the need for expertise in financial matters. A lot of expertise is required when you get involved in an SMSF. As a trustee, you would have to develop and deploy your investment strategy. Ultimately, the goal is to get adequate returns that would fund your retirement. Here are certain aspects you should be clear about.

• How investments work in share markets and other avenues
• How you can record your transactions and investments
• Make sure that you have diversified your portfolio to manage risk
• Formulating new investment strategies from time to time
• Reviewing diversification, risk, solvency, liquidity, and insurance requirements

At the same time, you need to remain updated on any possible change to the legal aspects affecting the SMSFs. Besides, you should be adroit in managing your legal documents like trust deeds. Most people bank on professional service providers and accountants to remain on the right side of norms.

 No statutory compensation

Remember, SMSFs are not conventional funds. Therefore, the members would not benefit from any sort of compensation in case the SMSF incurs loss due to fraud or theft of the investment assets underlying it. This implies that you would have a greater risk exposure compared to traditional funds.

Effect on insurance                                     

When you become a member or a trustee of an SMSF, it would be more intimidating for you to obtain disability or life insurance. In general, insurers would be ready to cover you without conducting any medical evaluation. However, having an SMSF would attract more stringency when it comes to the formalities. When you establish yourself as a trustee, it’s worth considering whether or not you would want to place the account in the large super fund. Alternatively, you might open a new one with adequate balance, so that you can maintain the policy.

Closing your SMSF

Due to certain reasons, you might need to close the fund in the coming years. Some of these include:

• If one of the trustees become disqualified
• Non-residency
• Capacity loss
• Breakdown of relationship between members
• Lack of interest
• Special needs for planning an estate
• Death of one of the members

When you decide to draw the benefits, you might realize that the value isn’t that competitive.

If you face similar consequences, you can choose from one of these three options.

• Turning the SMSF into a SAF (small APRA fund)
• Rolling over the benefits of the superannuation to a public offer fund
• Satisfying a release condition

SMSF charges and setup balance

In the first place, you should have adequate super savings, so that the fund can be made viable. This largely depends on the SMSF balance and the expenses you need to keep the fund running. On certain platforms, you do not need to shell out any fee to set up the fund. Besides, you need to pay a fee to the brokers, if you are trading shares. The expenses also include around $259 as the annual supervisory levy, that you need to pay to the ATO.

Well, you won’t come across any specific legislative minimum balance that you would need to set the fund up. However, it makes sense to compare the present super fees and determine if it would suit you. It is possible to set up the fund with any desired amount. Moreover, you might also consider new super offerings that come at a low cost. From the fee and investment perspective, you need to adopt a balanced approach. It would be highly recommended to get taxation and financial advice from experts when you set up an SMSF.

Working closely with accountants: Why does it matter?

While talking about your responsibilities as an SMSF trustee, you cannot possibly miss out consulting one of the established accountancy firms. With strict tax norms around, it makes sense to have a word with the experts. Accountants generally check the developments over the year to your SMSF and file the tax details accordingly. Failure to do so might deprive you of the benefits of the funds. Moreover, improper tax handling might also invite penalties. This explains why you should consult an established tax professional when you plan to set up an SMSF for yourself.