Operating an SMSF is a long-term commitment that is both challenging and rewarding. This article lists five common reasons why you should stay the course on your SMSF journey, and for those who are contemplating it, how you can meet your financial goals through an SMSF rather than through large superannuation funds.

1) An SMSF can be a family affair

An SMSF can be a single-member fund, a couple's nest egg, or a family of four members. It can be a personal goal towards a self-sufficient retirement, a common goal for a couple to support each other, or for the family, to enable members to share resources and cash flow by pooling super.

An SMSF is unique in that its governing rules, known as the trust deed, is tailor-made to each fund. It can also be an investment vehicle that brings the family together. Your investment objectives and investment strategies will be tailored to your own needs.

The perpetual nature of an SMSF means its existence can span beyond generations, so long as there are benefits within the fund.

Every dollar in and out of your SMSF is a milestone for your family. Your SMSF can be a record of family history. Imagine this:

• the first Superannuation Guarantee payment your child receives,

• the first salary sacrifice you manage to save up with a pay rise,

• the first post-tax contribution you make from your bonus,

• the first contribution splitting as you help your wife save in super while she's off work for child bearing and rearing,

• the first investment property,

• the first transitional to retirement income stream payment as you have reached preservation age,

• the first account based pension payment as you retire,

• the first lump sum payment for your trip around the world, and

• leaving your money and legacy behind when you pass away and your benefits are passed on to your beneficiaries, when a new story begins.

There are many tax and super strategies that can be used at the individual and fund level to maximise super.

In terms of investing, you may wonder how the investment profile of the younger members will be the same as those of the older members, and how you may align differing risk profiles across all walks of life. In an SMSF, opposites can be complementary.

Contributing members are usually in their prime earning years and do not make any drawdowns, albeit with a smaller member balance. On the other hand, drawdown members are usually in their retirement years but with much larger balances.

Cash flow from contributions can be used to fund pension payments, while assets accumulated in the SMSF can be pooled to increase economies of scale and investment choices.

2) An SMSF can also be a business affair

"We are all in the same boat" can apply beyond the family. Some members may be self-employed with co-owners. There can be more than common values, goals, and objectives to share--you may share the same retirement goals and investment strategies by pooling your super too.

You may wonder whether related party provisions may affect you. Be mindful of whether you and your business associates are classified as Part 8 Associates.

Generally speaking, as long as neither you nor your fellow directors hold a controlling interest in the company (in other words, none of you hold more than 50 per cent of your company's shares), and you are not in a partnership relationship, then you may pool your super into the same SMSF.

With pooled resources, you may invest in a commercial property where your company will be a tenant under market conditions at arm's length. Make sure you do it for your retirement and ensure it is part of your investment objectives and investment strategy, as the sole purpose test applies regardless.

3) An SMSF can be a tailor-made retirement savings vehicle

Large superannuation funds offer ever-increasing control and flexibility to members with a choice of investment strategies and options. Nevertheless, the flexibility and control that SMSF members enjoy are still second to none:

• Your trust deed can be drafted to your exact requirements and needs,

• You decide whether your SMSF has individual trustees or a corporate trustee,

• You decide who is admitted as your fund's members,

• You have maximum flexibility in fund investments, tax strategies, and estate planning,

• You don't need to be an expert with everything, but can draw upon the expertise of other professionals, be it administrators, accountants, financial planners, estate planner lawyers, and solicitors,

• You have access to unique investments and investment vehicles that are only accessible to SMSFs.

Popular direct and alternative investments which are generally only available to SMSFs include:

• Property, whether residential, commercial, or agricultural,

• Collectibles such as artwork,

• Precious metals such as gold and silver bullion,

• Foreign currencies,

• Cryptocurrencies,

• Unlisted interests, whether private company shares or trust units.

These assets and investments may be sourced anywhere, so long as you comply with superannuation legislation as well as accounting and audit requirements in relation to the acquisition, maintenance, and disposal of the assets.

Avoid common breaches of non-arm's length transactions and in-house asset rules.

4) An SMSF provides members with borrowing opportunities

Super funds are generally prohibited from borrowing. An exception is to borrow via a limited recourse borrowing arrangement (LRBA) and an SMSF has the flexibility to incorporate this exception into its trust deed and investment strategy.

Borrowing to invest does not guarantee a better investment return by itself, but it allows for investment opportunities that will otherwise not be achieved by a smaller asset base or a limited investment choice.

Assets in a, LRBA are commonly residential properties. Other assets can be:

• Parcels of fully-paid company shares and trust units,

• Instalment warrants in shares and unit trusts,

• Various types of properties, whether they are residential, commercial, or agricultural.

You may use an LRBA to fund the purchase of a single asset, or collection of identical assets that have the same market value, to be held in a separate trust.

5) An SMSF enables more flexible and tailored estate-planning arrangements

Superannuation is a non-estate asset. As such, the nomination in a will generally cannot override an existing valid superannuation beneficiary nomination.

While many members prefer their estate-planning needs to be dealt with by referring their beneficiary nomination to a "legal personal representative (LPR)," you may have a totally different beneficiary nomination to your will.

In making your nominations, you may consider super dependents and tax dependents. Super dependents dictate who can receive a super death benefit, while tax dependents dictate how a super death benefit will be taxed.

One taxation strategy is to nominate tax dependents as beneficiaries on super accounts with a low tax-free component, and non-tax dependents as beneficiaries on super accounts with a high tax-free component, so the beneficiaries will receive the highest post-tax death benefits.

Another strategy for optimising the tax-free component is via recontributions, or "super recycling," as long as contribution rules are met and caps allow, back to the original member or to a different member.

Separate nomination is also useful if you have a blended or extended family structure so that your super benefits may be split into different member accounts with individual binding death benefit nominations.

Being an SMSF trustee is both exciting and challenging. You may already be on the journey of being a trustee. If you are not, you may know someone who does. Check with your financial adviser, accountant, and solicitor about how you may make the most out of your SMSF journey.

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Victoria Kuok is an SMSF specialist advisor at the SMSF Association. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.

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