It’s important to make sure you keep the investments in your SMSF separate from your personal investments and make sure it’s clear who owns what. It may sound like common sense, but if your personal investments end up mixed with your SMSF’s assets there can be serious consequences. In any case the law requires your SMSF to separate your fund’s assets from your personal assets. If you don’t do it, you can be penalised up to $4,200 or even be disqualified as a fund trustee.
Why should you separate assets?
Separating your assets from the fund’s assets can clearly identify those assets belonging to the super fund. This can assist with the accounts for the fund and when calculating each member’s balance. It also helps in difficult situations such as divorce, death of a member and in the unfortunate situation where a member may be insolvent and facing bankruptcy.
In a divorce a member is entitled to find out information about their partner’s benefit in the SMSF for purposes of the marriage settlement. If the members have mixed their personal assets with the fund assets the member’s account balances may be incorrectly calculated and could end up with one partner getting a higher or lower share of the marriage assets than they should.
On the death of a member the correct identification of the fund assets and member balances will help to ensure the right amount is paid by the fund to a member’s surviving partner or dependants. If the assets are mixed with the personal assets of the deceased member, they may be mistakenly included in the member’s personal estate and payment will be made in accordance with their will. The payment may also be delayed as probate may be required prior to the distribution of the member’s personal estate.
Insolvency of the member brings with it a number of difficult situations. While superannuation benefits are protected from creditors, the fund assets must not be confused with personal assets. Creditors may make a claim on them if they are not identified as an asset of the fund. If a member is declared bankrupt (insolvent) their super benefit must be transferred to another fund, as they are not permitted to be a trustee of any superannuation fund during the bankruptcy period. Incorrect identification of assets may mean a reduction in the amount accumulated in super.
Which is the best way to do it?
The superannuation law permits a self-managed fund to have two types of trustees. The first is individual trustees and the second is a corporate trustee where the fund members are directors of the company. Mixing of assets is more likely to occur if the fund trustee consists of individuals rather than a corporate trustee. o setting up a company to be trustee may be an easier way of identify those assets that belong to the fund.
There are also other benefits of having a corporate trustee. As the fund assets and investments are held in the name of the company there will be no requirement to change the owner of the fund assets should a new member join or a member leaves the fund. In contrast, if the trustee is made up of individuals, each time the fund membership changes, it is necessary to change the legal owner of the asset. In some cases this may involve incurring stamp duty and other costs
What if the investments can’t be registered in the fund’s name?
In some situations it is not possible to register an asset in the fund’s name, for example, real estate which requires the property to be held in the name of the individual trustees or the corporate trustee. To ensure that an asset is clearly identified as belonging to the fund, it may be necessary for a declaration of trust to be made over the property or that there is a covenant made by the trustee over the real estate.
What could happen?
As an example of what could happen, Nic and Sarina are the individual trustees of their SMSF. When Nic goes to the bank to set up an account, he has it in their personal names without referring to them as trustees for their SMSF. The SMSF purchases shares in a public company, which are recorded as being in his personal name. Some time later they decide to separate and Nic makes the claim that the bank account is a joint personal account and the shares in the public company are owned by him personally.
As another example, Rob and Naomi have an SMSF, which has a corporate trustee. Rob owns a factory in which the family business operates an upholstery business. He decides to sell the factory to the SMSF but to save on stamp duty leaves it in his own name. Unfortunately, Rob dies in an industrial accident and his will names his two children from another marriage to receive the proceeds of the estate. A dispute arises as to whether the superannuation fund is the owner of the property or it belongs to Rob.
Had the bank account, public company shares or the industrial property been recognised correctly as belonging to the superannuation fund these issues would probably not have arisen.
 Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
