What are the obligations as trustees of a SMSF?
The new financial year is a great trigger point to ensure your Self-manged superannuation fund investment strategy is up-to-date. It is this perfect opportunity to review your SMSF goals and ensure they continue to track in line with your objectives.
As part of the fund’s annual return, all SMSF members must specifically detail their chosen investment strategy and benchmark weightings. Whilst the investment allocation is considerably important we must also consider risk protection as part of the fund’s strategy. Risk protection is key to estate planning and can provide protection in ways investment protection or diversification cannot.
Nowadays, life insurance must be considered by all trustees. Consideration applies to whether it is necessary for each member, and if so, what level of cover is required.
The SMSF insurance rules
SMSF Trustees need to document their considerations on the level of insurance cover required for each member of the fund. If it is decided cover is required, they must also decide if this cover is to be structured inside or outside the SMSF environment.
Often this is completed as a trustee’s resolution specific to the insurance consideration. Alternatively, it can be included as part of the SMSF investment strategy documentation. In either case, the requirement (or non-requirement) for insurance must be detailed, and if any insurance is taken out how much and how it is to be structured.
How much insurance is enough?
The amount of insurance required for each member of the SMSF may be different. Often life insurance is used to ensure that all debts are repaid upon the death of the life insured with additional cover used in many cases for areas of concern such as funeral costs, education costs for their surviving children, providing an income for their spouse after their death and many more. When considering life insurance it is best practice to speak with a financial adviser who can assist you in determining the level, structure and type of insurance best suited to your particular situation. Importantly, some insurances cannot be held in super, and if you are unsure of the specific rules that apply to you or the fund professional advice is recommended.
Is the risk worth it?
When considering life insurance (or any insurance for that matter) you must consider both sides of the coin. The importance of owning adequate cover whether it be personally or through a SMSF speaks for itself. Consider what would happen if you didn’t have any cover – would your fund be required to sell assets? Maybe dramatically reduce your member benefit to cover the shortfall?
We recommend you speak with us to ensure that you have adequately considered the importance of insurance and the benefits it can provide to your long term wealth creation. There are also additional requirements of a trustee which we have not addressed in this article. We have detailed only the life insurance requirement of trustees of a SMSF,
If wish to discuss this area in more detail or if you have any other areas of concern, please contact us.
(P) (07) 3284 7875 | (F) (07) 3284 4790
