Tag Archives: superannuation

Setting up SMSF Self Managed Superannuation Fund

Decision to set up a SMSF

The decision to establish a Self Managed Superannuation Fund (SMSF) is not easy. This decision requires considerable aforethought but any delay in setting up SMSF allows money in superannuation to build up to a level where the maintenance and set up SMSF costs are effective and sustainable. As a result there is no need to rush your decision.  The second consideration is to be mindful to ensure that the “Self” in SMSF is attainable as, without members attending to the administration themselves, the costs would probably be prohibitive. Were one to require professional advisers to establish and maintain the fund then a SMSF may not be appropriate as it may not remain const effective.  As a result there had been considerable planning and thought about these matters ahead of time.

Costs of Setting up SMSF

As my funds within superannuation amounted to just over $250,000, then on an annual basis, the administration costs were amounting to at least $5,900 per annum. What were the the steps in establishing the fund and what were the costs and process.

The ease with which one is able to establish the fund is remarkable. Online there are many service providers but  cleardocs.com was chosen for a suite of Superannuation (SMSF) documents. Their website included an interface to ASIC to register a corporate trustee as this option was chosen in our circumstances. This choice of a corporate trustee is the subject of a separate post. The cost for the founding legal documents of the Superannuation Trust and Company structure was $397 with a further $469 for ASIC’s fee for the registration of the corporate trustee.

Steps setting up SMSF

The cleardocs website calls for:

  • the names of the members of the fund,
  • the trustee company name, addresses, and
  • directors

once provided the Superannuation Trust Documentation Package, consisting of all  legal documents and pre-prepared correspondence is provided.  With the clear guidance online, the detail is easily completed and within minutes the documentation for structure is provided with confirmation of registration of the trustee company instantaneous.

In addition, a Superannuation Fund Establishment Kit is provided. This is very useful and clearly written, setting out all the steps for the proper completion and signing of the documents, and detailing other obligations.

Having received notification of establishment of the corporate trustee then once the trust documents were signed our SMSF was established.  As a result of electronic messaging between ASIC and the Australian Tax Office the fund was also registered with the ATO. This process was simple, very comprehensive and easy navigate and was cost effective.

Next Steps:

Recommended Reading:

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An income stream for life

An income from superannuation lump sum

The following simple story aims to explain the difference between a superannuation lump sum payout  or a lump sum payout from life insurance policy and a regular income.

Suppose you went to a building contractor and said, “I want you to build me a house.” “What kind of a house?” “Well,” you say, “a Colonial, brick house, with ten rooms, three baths, and a sun porch, slate roof, hardwood trim and floors, open plumbing, and hot-water heat.”

Sometime later he calls you on the telephone and says, “I’ll drive you out to look at your new house.” You motor out to a beautiful section of the city and stop in the midst of a group of handsome homes.

The contractor says: “Here’s your house, just what you ordered.” But you are puzzled. There isn’t any house opposite the place where you have parked the car. “Where is my house?” you ask. “Right here,” he answers, pointing at the block before which you have stopped. “But there isn’t any house there,” you exclaim, in amazement. “There is nothing on that lot but a heap of bricks, barrels of lime, lumber, kegs of nails, building hardware, slate shingles, plumbing supplies, and cans of paint.”

“Well, I call that a house,” says the builder. “A house!” you exclaim. “Why, that is only the material out of which a house may be built.” A superannuation lump sum is only the brick and mortar of the House of Protection.  And yet every day, all up and down this country, superannuation and related life-insurance policies, intended to furnish permanent support are settled in lump sum and people are saying to themselves with satisfaction, ”I have provided my family protection in event of my premature death.”

Adapted from: Lovelace, Griffin M., 1876-. The house of protection, 1921. New York and London, Harper & brothers.

Conversion of superannuation lump sum

The conversion of accumulated superannuation into an income stream is not mandatory.  However the benefits of converting superannuation or a life insurance settlement into an income stream are enormous.

Most people believe that their superannuation or life insurance will provide for them into retirement or their dependents in the event of their premature death. The accumulated balance in superannuation represents a portion of a person’s average lifetime earnings and most people don’t plan how much this will amount to.  Alternatively, how life insurance will support their dependents.  Superannuation contributions are made at a mandated level and some people may have a basic level of life insurance.  In order for these two things to provide for retirement or dependents, it’s important that they are invested to provide an income stream.

In these circumstances, dependents need to be protected. But how are they protected and indeed what is ”protection”? According to the dictionary, protection is that ‘which preserves or keeps from injury or harm’. What is the danger or harm from which superannuation and life insurance is intended to shield dependents?  It is the lack of food, shelter, clothing, medical care, education, and reasonable comforts, either for life or for a specified period.

Does superannuation and life insurance, as it is arranged in the average case, really protect the beneficiaries against the lack of the necessaries and reasonable comforts of life? Unfortunately, there is no doubt as to the answer to this question.  It is emphatically ”no.” The average person is not actually guaranteeing protection to the family, as thought.

Further Reading

Income from Superannuation lump sum