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Self Managed Super Fund (SMSF) Article
SMSF Trustee Responsibilities
By Tony Negline.
This article may be out of date.
12th May 2004
Trustees play an essential role in all Self-Managed Super Funds.
Trustees must be fully aware of the rules their fund has to comply with and must be fully aware of their trustee obligations.
However, some trustees would probably admit that without their advisers – lawyers, administrators, accountants, auditors, actuaries, financial planners and others – their SMSF would collapse in a screaming heap.
A good way to fully understand the responsibility of a super fund trustee is to consider the roll of a company director who is fully responsible for all activities of a company.
One of the best known director responsibilities is to ensure that a company never trades whilst insolvent. If a company does trade insolvently, the directors may face severe sanctions and penalties, such as being banned from being directors of other companies for many years, and may even have to use their own personal funds to make good the losses incurred by the business.
In short the buck stops with the company directors.
This doesn’t mean that a company director can’t rely on others to run their business and to keep them sufficiently informed to make appropriate decisions.
But it is up to company directors to personally ensure the accuracy of the information and the advice their advisers have given them. And it is also up to company directors to ask the right questions and to sufficiently probe their advisers to ensure they are comfortable with the decision the directors ultimately make.
Who can’t recall the loud cries of derision which universally erupt when directors, of high profile companies which have got into trouble, use ignorance of either the law, their responsibilities or the activities of the business itself, as an excuse to evade the personal consequences of a business’ problems?
A super fund trustee, at law, takes on a much higher level of responsibility than company directors.
A super fund is a trust. This means the monies in that trust is held ‘on trust’.
In running a trust, the trustee must have regard to many duties and responsibilities which have been developed and evolved over about 500 years of Court cases.
In the vast majority of cases however many SMSF trustees have to rely on their professional advisers in all aspects of running their SMSF.
The Australian Taxation Office, the SMSF regulator, has mentioned a number of times that it fully realises most trustees have little or no knowledge of their responsibilities and as a result have to almost completely rely on their advisers.
To date the ATO have been kind to trustees. It seems to have accepted the widely held ignorance of the law. Rather than immediately enforce compliance, the ATO seems prepared to regulate trustees and their advisers by education and encouragement.
The great unknown is, when the ATO will have a change of heart? When will it have had enough of kindness in relation to SMSF trustees and begin to apply the very strong powers the Parliament has given it to supervise SMSFs? If only we knew.
The desire to be in control is a strong motivator of many SMSF investors. Why then do some trustees almost go out of their way to know as little as possible about their responsibilities and the super laws?
How much can a trustee rely on their advisers to run their fund? Just like company directors, a trustee can rely on their advisers to assist them in running their fund. In fact many trustees of very large super funds (with billions of dollars and many thousands of members) rely very much on their experts to help them guide their way through their responsibilities and the maze of super laws.
Often SMSF trustees survive their ignorance of their trustee responsibilities by the good fortune that nothing goes wrong with their fund, with their personal lives (such as death, divorce, bankruptcy and so on) or their fund is never closely examined by their SMSF auditor or by the ATO.
Some trustees will believe that nothing bad will happen to their fund or in their lives. They will also be willing to risk the reasonable probability that the ATO won’t examine their fund. Hence they believe they can continue to rely totally on their advisers to run their fund.
However when something does go wrong most trustees find out very quickly that ignorance can be a very expensive disease to fix.
It is for these reasons that SMSF trustees must know about the basic building blocks of SMSFs especially the super laws.
A great place for trustees to start is an ATO prepared document, “Checklist for self managed superannuation funds (long version)” which trustees can down-load from http://www.ato.gov.au/super/content.asp?doc=/content/19097.htm
Checklist of some trustee responsibilities:
- To act honestly
- To satisfy the prudent person test (this is an adult version of “don’t do anything that you can’t tell your mother”)
- Duties and powers are exercised in the best interests of all beneficiaries
- Keep the assets and money of the entity separate from other money
- Don’t enter into anything which prevents the trustee from properly performing their trustee functions and powers
- Develop an investment strategy
- Give a beneficiary access to appropriate information
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