by Olivia Long

It was former Prime Minister Malcolm Fraser who famously (or infamously) said that “life wasn’t meant to be easy”. Well, that saying could easily apply to an SMSF trustee. If you ignore the detail then you can pay a hefty price.

There are many ways this can happen, but let me to explain five that can attract the criticism of the regulators.

To begin on a somber note, death benefit nominations. Many people forget that superannuation isn’t automatically part of a will and if a binding death benefit nomination is in place then it overrules the will. This becomes particularly important if there is a divorce.

Many ex-spouses continue to enjoy superannuation benefits because the death benefit nomination was somehow “forgotten” when they divorced. This can be irritating, to put it mildly, for anyone whose benefits are still going to their ex-spouse.

Their annoyance, however, can pale into insignificance if they remarry and the new partner knows their superannuation benefits are still going to the “ex”. It’s hardly a recipe for domestic bliss.

At a more mundane, but more frequent level, superannuation contributions often catch out trustees and their advisers.

It happens so easily.  Clients don’t carefully monitor contributions they make during the year and then, at the end of the financial year, accidentally contribute too much as part of the year-end tax planning. The Australian Taxation Office (ATO) has made it clear they are on the look-out for excess contributions, and penalties do apply, although recent changes give the taxman more flexibility in this matter.
 
Best if it happens, to act quickly and seek advice while opportunity is available. 

Pensions, too, can be a trap for young players (so to speak). Clients with transition to retirement pensions need to be careful not to exceed the maximum amount they’re allowed to withdraw and must ensure they take the minimum.
 
Perhaps more surprisingly, clients in pension mode often forget to draw down the minimum which means they lose the tax concessions of the pension for the financial year when it occurred.

When it comes to property inside an SMSF, there are several traps to avoid. Trustees who accidentally pay a property expense from their personal money must remember this expense counts as a contribution to the fund and must be treated as such.
 
Lease agreements need to be in the correct name which sometimes isn’t the case when there is a limited recourse borrowing arrangement in place. Remember, too, any rent has to be at market value; the property can’t be leased to a related party if residential property; and trustees must organise insurance so that if one member dies, the remaining member/s can afford to pay out the death benefit.

Are you cashed up? Some trustees leave too little cash in their account, taking the risk of their fund going into overdraft which is contrary to the rules and can draw a penalty.

In my experience, most of these transgressions are an oversight – not deliberate. But as that old saying goes, ignorance of the law is no excuse. It’s the responsibility of the trustee and their advisers to get it right.