Tracey Scotchbrook: Protecting your SMSF assets . . . it’s all in the name

It is essential that self-managed superannuation fund trustees make sure that all the accounts and investments are held in the right name. It sounds obvious, but simple oversights can prove costly.

Included in the compliance obligations that apply to SMSFs are eight core trustee covenants. These include a requirement that trustees keep the money and assets of the fund separate from any personal assets. They are also required to act in the best interests of the fund’s beneficiaries and to exercise care, skill and diligence when making investment decisions.

If a covenant is breached, the trustees are at risk of being sued. A beneficiary of the fund who suffers a loss because of the breach can take action to recover those losses. This might not seem to be an issue for couples in an SMSF. However, in the event of a divorce, or on the death of a member, things can change. The beneficiaries of a deceased member may become an aggrieved party if things go wrong.

As a rule, the assets in your SMSF are protected from your creditors. For that protection to work, SMSF trustees must ensure that the accounts and investments of the fund are held in the correct name.

Where the fund has individual trustees, purchase contracts and assets must be held in the name of all the individual trustees as trustees for the super fund. Similarly, where a company is used, the assets must be held in the name of the company as trustee for the super fund.

Any time there is a change of trustee, it is important to ensure all the fund’s bank accounts and investments are updated. For bank accounts, often a new account will be required.

Any time an asset is acquired by the SMSF, the documentation must note the change of ownership and record the change of name or title. This includes where a member makes an in-specie contribution. In-specie contributions are where a contribution is made to the fund by transferring personal investments rather than depositing cash. Use of this strategy is restricted to specific types of assets and includes listed shares and business real property.

Changing the asset title can be overlooked where the SMSF has individual trustees. One common misunderstanding is where an asset is held personally, and the individuals are also trustees of the SMSF, that no further action is required.

Trustees must ensure that the appropriate contracts and transfer documents are completed. These must clearly show the change in ownership to the SMSF. Where property is concerned, stamp duty may also apply.

In WA, land titles only record the name of the trustees. The SMSF’s name will not appear on the certificate of title with Landgate. It is therefore important that documents such as a declaration of trust and caveats are put in place to register and protect the SMSF’s interests.

It is important that appropriate legal advice is obtained to ensure that all the essential documents are put in place, stamped (if applicable) and registered.

A recent case in WA highlighted several key issues surrounding the separation of personal and SMSF assets. These included the importance of not mixing super fund monies with personal proceeds and getting the documentation and registered name for the investment right. The court noted that minutes alone are insufficient. Further, registering the SMSF’s tax file number with a share registry or changing an account “nickname” in an online banking facility does not change the ownership of those assets.

In this case, several bank accounts, an online share trading account and several investment properties were held personally in the name of a member. These assets were of notable value and represented a significant value of the fund. The couple’s bankruptcy trustee sought to claim these assets for creditors and was successful.

The judge noted that while the “family nature” of an SMSF might suggest a less strict approach, the law imposes strict compliance obligations on trustees.

When it comes to your SMSF, details matter. So, what’s in a name means everything.

Tracey Scotchbrook is policy manager at SMSF Association