Book Review > Guide to Self Managed Super Funds, 3rd edition

In the May 2006 budget the Treasurer introduced the Simpler Super Reforms which were in part a response to the aging baby boomers and the desire to keep the boomers in the workforce'. These reforms will have significant implications for superannuation including the abolition of the RBL, a greater flexibility as to how individuals draw down their superannuation in retirement and a tax-free income stream from a pension.

Abbott's book is designed to be a simple practical working guide to self managed super funds (SMSFs) and identifies a number of strategies made possible with the Simpler Super Reforms. Trustees of a SMSF control fund assets and gain independence and in return have responsibility for the management of the fund and its assets and this requires some understanding of the laws related to taxation and superannuation.

The book provides a comprehensive guide to SMSFs and will be useful for trustees seeking more information when planning their superannuation strategies. Topics of particular interest include:

SMSF the right vehicle for the right time.

This section examines the different options available for retirement planning for persons of varying ages. The choice of the appropriate vehicle and its structure is discussed in some detail. Assets may be held in an individual's name, a company, a family trust, a retail superannuation fund or a SMSF. Each of these alternatives is discussed in terms of control, administration, asset protection, tax reduction and estate planning for different age groups. There is a detailed discussion on the benefits and drawbacks of the role of the SMSF in retirement planning.

Planning and setting up a SMSF

Perhaps the most significant section in this book deals with compliance. Abbott discusses the advantage of using a SMSF corporate trustee. Most SMSFs use an ordinary shelf company as the basis of the trustee company. Abbott says that this is not suitable for as a SMSF trustee as it poses special problems related to voting rights, automatic appointment of a trustee upon death and other strategic options. He strongly advises the use of a special purpose trustee company. Where a SMSF has an existing trustee company a change can be achieved by upgrading the current company Memorandum and Articles of Association.

There is a broad discussion of the significance of the trust deed and Abbott makes the point that most trust deeds are inadequate or not specific for each SMSF and as such may pose significant limitations and risks for that fund.

The Case Study

Abbott uses the case study of 45-year-old James Mason and his family to provide examples of a wide range of different superannuation strategies. The case study that develops through the book evolves from the planning stages to a mature SMSF plan, which covers all aspects of retirement, investment and estate planning for the Mason family. While this is a deliberately complex situation, trustees will no doubt recognise many situations faced by the Mason family that may be applied to their own fund.

Investment strategies

This is a useful section, which covers investor profiles and strategies from a number of different viewpoints and discusses the advantages of retirees operating separate lump sum and pension accounts under the Simpler Super Reforms. It emphasises the responsibility of the trustee to satisfy the sole purpose of the SMSF under SISA (Superannuation Industry (Supervision) Act 1993). Abbott discusses pooled and separate investment strategies and emphasises that any investment plan must be consistent with the trust deed for the SMSF.

Taxation and the SMSF

This section reviews the complexities of the taxation system as applied to SMSFs. While the Australian government offers many incentives for SMSFs, careful planning is essential if the trustees are to take advantage of these available concessions. The trust deed is crucial to the operation of the SMSF and yet Abbott believes that most trustees and some advisers have not even read their trust deed. Since a breach of the trust deed could render the SMSF a non-complying fund, familiarity with this document is essential. Consessional taxation for SMSFs is available only to complying funds. If for any reason the fund is deemed to be non-complying, then the trustees could be liable for a heavy tax penalty where 'at the very least, a 45% tax rate applies to all of the taxable income of the fund - including the market value of the assets of the fund taken at the end of the last year of income'.

Estate planning

The opportunities for using a SMSF in estate planning are discussed in this section. The SMSF is now 'by far the most flexible, tax effective vehicle to provide benefits to the family upon the death of the member'. It is significant that where the member's estate planning strategy is part of a SMSF, it resides outside of his/her will and it cannot be subject to legal challenge after death.

This review highlights only some of the sections in Abbott's comprehensive book which contains a wealth of information on SMSFs. My only criticism of this book is that there is no index to the more than 30 acronyms that Abbott uses so frequently so the average trustee may find that this book is rather challenging at first reading.

From my viewpoint, reading this book has made me realise that the trust deed for my family SMSF has major shortcomings even though the deed was only recently updated. Further it is apparent that some professional advice I have received may be either incorrect or inappropriate.

This highlights the problem that trustees face in evaluating the accuracy and value of professional advice on SMSFs. Trustees need to have an ongoing educational program so that they have sufficient up-to-date information to critically evaluate all professional advice before implementing it. Abbott's book is highly recommended as an educational tool for the SMSF trustee or for persons planning to establish an SMSF.

Bill Dodd is a member of the AIA.