A Quick Guide to Understanding Trustee Duties

One of the most important things a Trustee needs to understand when establishing a Self Managed Superannuation Fund (SMSF) is the Sole Purpose Test and Trustee Duties. The ATO clearly defines these responsibilities, which you are accepting when you complete the “Trustee Declaration Form” upon SMSF establishment.

Sole purpose

I understand it is my responsibility to ensure the fund is only maintained for the purpose of providing benefits to the members upon their retirement (or attainment of a certain age) or their beneficiaries if a member dies. I understand that I should regularly evaluate whether the fund continues to be the appropriate vehicle to meet this purpose.

Trustee duties

I understand that by law I must at all times:

• act honestly in all matters concerning the fund
• exercise skill, care, and diligence in managing the fund
• act in the best interests of all the members of the fund
• ensure that members only access their super benefits if they have met a legitimate condition of release
• refrain from entering into transactions that circumvent restrictions on the payment of benefits
• ensure that my money and other assets are kept separate from the money and other assets of the fund
• take appropriate action to protect the fund’s assets (for example, have sufficient evidence of the ownership of fund assets)
• refrain from entering into any contract or do anything that would prevent me from, or hinder me in, properly performing or
  exercising my functions or powers as a trustee or director of the corporate trustee of the fund
• allow all members of the fund to have access to information and documents as required, including details about
  • the financial situation of the fund
  • the investments of the fund
  • the members’ benefit entitlements.

I also understand that by law I must prepare, implement and regularly review an investment strategy having regard to all the circumstances of the fund, which include, but are not limited to:

• the risks associated with the fund’s investment
• the likely return from investments, taking into account the fund’s objectives and expected cash flow requirement
• investment diversity and the fund’s exposure to risk due to inadequate diversification
• the liquidity of the fund’s investments having regard to the fund’s expected cash flow requirements in discharging its existing and prospective liabilities (including benefit payments
• whether the trustees of the fund should hold insurance cover for one or more members of the fund.

The ATO also ensures that you are fully aware of the consequences of non-compliance on the “Trustee Declaration Form”:

If I do not comply with the legislation, the Commissioner may take the following actions:

• impose administrative penalties on me
• give me a written direction to rectify any contraventions or undertake a course of education
• enter into agreements with me to rectify any contraventions of the legislation
• disqualify me from being a trustee or director of a corporate trustee of any superannuation fund in the future
• remove the fund’s complying status, which may result in significant adverse tax consequences for the fund
• prosecute me under the law, which may result in fines or imprisonment.

These are the reasons why it’s so important that you seek expert advice when it comes to dealing in Self Managed Superannuation.

Contact us at Super Network Financial Services and let us help you get your SMSF back in check.