Keeping investments in the trustee’s name

The super law requires the trustee of an SMSF to keep the fund’s investments in the name of the trustee whether they consist of individuals or a corporate trustee. It also helps to protect the fund’s investments from being mixed with personal or business assets of the trustee.

The two main benefits of recording the fund investments correctly is that it distinguishes them from personal or business assets, and clearly shows the legal ownership by the fund. This helps to clearly identify the investment in the event of uncertainty or a dispute. The overall objective is that retirement savings are not accessed by creditors or staying out of the courts when trying to prove ownership of the investment.

Assets registered correctly

A common way of holding the fund’s assets can be by naming the individual trustees or a company trustee ‘as trustee for’ or ‘ATF’ for the super fund name. In some situations, it may not be possible to register the fund’s investment ‘as trustee for’ or ‘ATF’. For example, in nearly all Australian states property ownership is registered or recorded in the name(s) of the individual trustees or company trustee. The only exception for land ownership is in Queensland where it is possible to note on the title that the property is held ‘as trustee’. However, the name of the trust, including the super fund name, is not permitted.

Where it is not possible to register the ownership of an investment as trustee for the superannuation fund, a Declaration of Trust may need to be executed or a caveat could be placed over the investment. This statement will be signed by the trustee and recorded in the minutes of the fund. It is common practise that the declaration may indicate that the investment is not registered in the name of the trustee and provide the reason why that’s the case.

Generally, most auditors are comfortable with the explanation and that the investment belongs to the superannuation fund. This would be supported by documents, such as a contract of sale/purchase of the asset and transactions documented in the fund accounts.

In some situations, such as a change of a trustee in a fund, it may be better for no change of name to take place. An example could be a term deposit which was made prior to the change of trustee. In some cases, the change may mean that if the change was made to the name of the depositor a lower interest rate may be earned on the term deposit. This would have an impact on the retirement savings of the members, and it may be better to make no change until the term deposit has matured.

Investments recorded at market value

It is very important that assets are recorded at market value as the fund’s auditor is required to prepare the accounts on that basis. The trustee is responsible to obtain the valuation and that it is consistent with the ATO’s guidelines, for taxation purposes.

From a practical point of view, market valuations are important for several reasons, including:

• determining pension payments for the financial year;
• payment of lump sums, as member accounts should be valued to calculate member account balances;
• whether the fund has exceeded the permitted level of in-house assets and other investment rules; and 
• other scenarios, such as estate planning and assisting in making retirement decisions.

Complying with the ownership rules

Probably the easiest way to help prove that an investment belongs to the superannuation fund is for the fund to have a company set up solely for purposes of being a corporate trustee. That way, all the investments owned by the company can be recognised as being investments of the superannuation fund.

In this structure, if there was a change in one or more of the company directors occurs, there would be no requirement to change the name on the ownership documents for each fund investment. Also, having a company as trustee reduces the chance of personal assets becoming intermingled with fund investments.

In comparison to a company trustee, an SMSF fund may have its assets named to an individual trustee. It should be noted that if an individual trustee joins or leaves the fund, the names on the investment are required to be changed to the new individual trustees. This takes time and involves some costs, which are usually less if the fund had a company trustee.

Another issue with having individual trustees is that there is a limit to the names that can be recorded for ownership of the investment. In the case of an online share account, there may be a limit to two or three names, or a limit to the number of letters in a person’s name that can be recorded. If there more individual trustees than permitted, additional work will be required to record the names of all individual trustees in the fund records in relation to the shares.

Making it easy

The main thing with having an SMSF is to concentrate on what the fund is there for, which is building retirement wealth. So, with that in mind. as trustee or a director of the corporate trustee, all the record keeping should be made as easy as possible. It is important to make sure fund investments are clearly identified as belonging to the fund and are not mixed with personal investments to avoid any dispute over the ownership of the asset.