One financial planning practice’s director has highlighted some common mistakes made by SMSF trustees, including establishing an SMSF with a low balance.
Verante Financial Planning director and SMSF specialist Liam Shorte said one mistake he comes across with SMSFs is trustees “jumping in” too early with a low balance.
Unless a trustee expects to make regular, large contributions in the coming years, or plans to contribute a large lump-sump payment, the administration fees associated with an SMSF will generally “erode away any profits”, Mr Shorte said.
“The general, agreed rule of thumb among honest SMSF professionals for a minimum balance for an SMSF would be $200K,” he said.
“This would only be on the proviso you would be making contributions at or near your concessional cap, depending on your age, and that you may also be adding some non-concessional funds on a regular basis so that your fund has $300-$500K within three to five years.”
Mr Shorte also noted 76 per cent of SMSFs have individual trustees or a trading company as trustee, adding that a sole purpose corporate trustee would be more suitable for long-term planning.
Trustees also often fail to plan for the death or serious illness of a member, which can have a “devastating” impact on the remaining members and the fund itself, Mr Shorte said.
Strategies should be put in place so that all members involved in the fund understand its rules and investment strategy, Mr Shorte said, and binding death nominations and reversionary pensions should be reviewed regularly to ensure they still meet the trustees’ wishes.
Mr Shorte also noted some trustees do a “half-baked job” of arranging for their SMSF to own their business premises.
For example, if a member of the fund dies without the proper insurance in place, the fund may have to pay out death benefits, leading to a rushed sale of the commercial premises, Mr Shorte said.
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