SMSF Advice

[Paul@PFI]

One of the most inappropriate advertorials (Its basically an ad) published for a while appeared in todays media. http://www.smh.com.au/small-business/finance/six-reasons-why-you-need-an-smsf-20141015-3i13h.html

Non-financial advice that considers ONLY some merits of a SMSF....No mention of adverse issues, costs and when its not appropriate. No financial advice - No AFSL. Of course just a standard disclaimer.

I wish ASIC would address these types of single advice SMSF spruikers. Life insurance issues ? Problems with estate planning and death benefits, costs, Directors guarantees which may affect credit, lack of prudential protection, potential issues arising from business failure / marital breakdown...

I wonder what independent financial advice is ? Does that mean they ONLY setup the fund after another financial adviser gives a statement of advice ?

 

[Terry_w]

My view is that only lawyers can set up a SMSF. A SMSF is a trust and a trust is a legal relationship between the trustee, beneficiariers and property. Even if an advisor who isn't a lawyer buys a template deed from a lawyer and insets the names this is legal advice as it involves advising who the trustee will be, the structure of the trustee and other matters relating to the deed and interpretation of wording of the deed.

This was confirmed in a recent WA case.

The article also discusses the transfer of business real property as well. Legal advice.

Accountants can advice on the tax aspects, including land tax and stamp duty. Financial Planners (AFSL licence holders or reps) can advise on the financial aspects such as pensions, where to invest, investing in business real property, insurance etc.

Its a fine line between all 3 areas, or 4 areas if you include Mortgage Broking. Advisers are crossing the lines all the time and I am not even sure where to draw the line myself, that why I am getting licenced in all 4 areas.

 

[Paul@PFI]

A SMSF deed doesn't necessarily establish a trust but is a requirement contemplated by the SIS Act as a requirement for a SMSF trust. The trust is always established after the deed is acquired and executed. In fact I often encounter SMSFs that don't validly exist as the deed never progressed to a single asset in the fund. The ATO now adopts the views of the legal profession that a SMSF trust does not exist until the fund has assets.

Same as the Corporations Act contemplates accountants establishing a company (s131) the legal profession doesn't seek to regulate all documents prepared by lawyers. A good example is Cleardocs. The source of these documents is Maddocks but Cleardocs is owned by a global publisher. There is zero legal advice given so no breach of the Legal Professions Act. There may be a concern if a person ordering is not a lawyer and gives legal advice. The ATO gives guidance on Trustees and SMSF establishments on its website and in numerous publications. I have never heard that view challenged as legal advice. Our accountants PI insurance covers superannuation fund establishment etc. As does our AFSL PI.

The NSW Legal Professions Act regulates legal services but buying a trust, will or other document obtained from a lawyer isn't regulated by that Act. It does regulate that only a lawyer may draft and settle the terms of the trust deed. It doesn't prevent the lawyer selling its deed by any means. The same as the Act doesn't preclude a person from preparing their own DIY will. It also doesn't extend to a law firm that sells its precedent documents to the public. The LPA doesn't regulate that all trusts and companies must have legal advice. The very nature of a deed not requiring a lawyers sign off like found in a Guardianship deed etc indicates that no states regulate the deed as a legal service. It just says that only a member with a practicing certificate can conduct a legal services.

Compliance with s17A is not legal advice if a SMSF is a taxation entity and an enterprise. Tax advice logically follows. I have more concern for legal advisers who advise on pension terms and rev pensions etc...Whilst for legal purposes its an estate issue its also financial advice.

Chicken or egg....I agree on the need to be licensed in multiple disciplines. I worry about lawyers who don't practice in a discipline such as tax to then claim they can advise on tax law....The Tax Practitioners Board does regulate some tax services too. Some are unregulated and expose a client to risk.

 

[Terry_w]

Hi Paul

s131 Corps refers to entering contracts before a company is formed. Not sure how it relates to accountants setting up companies.

i am not sure of any legislative basis for tax agents to advise on the SIS Act or the Corporations Act either.

I once asked a senior tax lawyer how is it that accountants set up trusts, companies and SMSFs and he shrugged his shoulders saying they can't but all do.

 

[Paul@PFI]

Agree there is an important need that unqualified others don't intrude into the area of legal practice. However many complaints refer to turf wars. An accountant who orders and buys a deed online from a lawyer or their online service cant be accused of breach. I have many instances of referring clients to a lawyer who then uses Cleardocs. I could do that !! However as demonstrated in the WA case of an accountant advertising SMSF deed preparation for a fee that's not on.

The SIS Act and Tax Law are intertwined. Just as other laws (NSW Duties Act, Land Tax) comprise tax law so is SIS. Tax law is more than two ITAAs. SIS seeks to regulate an enterprise under tax law and addresses tax law. Compliance is the core basis for regulation and is dealt with under tax law in many instances. ie income, non-compliance, contributions, caps, reserves etc...SIS only deals with some penalties. The very nature of compliance requires persons who are accountants - auditors and tax preparers . There is no sign off on a SMSF return for a lawyer. Two parties. 1. The accountant/tax agent and 2. Auditor. The auditor is obliged by the very nature of the audit to apply knowledge of SIS and tax laws.

The ATO as Regulator rely on tax agents and ASIC registered auditors yet the regulatory model for superannuation chose a trust requiring legal establishment. Where does one job end and the other commence ?

The ATO Trustee Declaration is a tax issue yet it appears to comprise a form of legal advice / compliance / **** covering that an auditor has to check. Lawyers cant be auditors. The SMSF election included in the BAS application appears to be a legal document yet the Tax Agent Services Act does not authorise a lawyer to prepare and lodge it unless they have TPB registration and do so as a tax agent. The very nature of the ABN application specifically allows a tax agent to sign the declaration for their client. I don't agree with that approach. I require the client to do this as I see a real issue with that form.

Just lawyers v's accountants turf wars. The new battlefield is financial planners v's lawyers in the estate planning world. FPA wants their members to be permitted to give estate planning and estate financial advice without a legal prac certificate. The scope & depth of the estate planning module is very intensive with that goal in mind.

 

[Terry_w]

The 'Estate Planning' that Financial Planners do is also largely done without any legislative basis. The planner will say 'get a will' 'get a POA' and may charge the client $2k for that without actually providing the will!
I think a planner can give estate planning advice, to a certain extent, about a SMSF, but telling a client strategies about leaving assets is really legal advice.

My biggest concern is that the advanced diploma in Financial planning has 1 subject on estate planning and the whole course can be done in 4 days. That is 1 day on estate planning - basic stuff too.

Lawyers do one whole semester on just wills - and then i did a 2 year Masters degree on top of that. Plus lawyers can do another optional course, which I did, during the College of Law training after graduation.

 

[Paul@PFI]

The 'Estate Planning' that Financial Planners do is also largely done without any legislative basis. The planner will say 'get a will' 'get a POA' and may charge the client $2k for that without actually providing the will!
I think a planner can give estate planning advice, to a certain extent, about a SMSF, but telling a client strategies about leaving assets is really legal advice.

My biggest concern is that the advanced diploma in Financial planning has 1 subject on estate planning and the whole course can be done in 4 days. That is 1 day on estate planning - basic stuff too.

Lawyers do one whole semester on just wills - and then i did a 2 year Masters degree on top of that. Plus lawyers can do another optional course, which I did, during the College of Law training after graduation.

The CFP course I referred to (sorry I mentioned FPA incorrectly) is 13 weeks and VERY detailed. Hard to pass...Basically its a Masters level and many estate lawyers may fail to get the required 85% pass. I mentor on some aspects (tax etc) and its very heavy stuff. Masters level. Agree its not a detailed as you would expect of a legal practitioner but then not all lawyers do those courses either.

I think that specialist qualifications should be adopted for lawyers to assist people to identify specialities like that. recently dealt with a client who was a beneficiary affected by a lawyer who did estate admin and stuffed it up after bad tax advice. No estate admin experience or trust experience led to it.

 

[Terry_w]

The CFP (certified financial planner) is a specialist accreditation, hard to get. Like the CTA (chartered tax advisor) (which I have ).

There are specialist accreditations for lawyers in different fields, Wills and Estates, taxation, property etc. You need to work 5 years in the area, pass an interview and exam etc. I would like to go for the wills and estates specialist accreditation but I don't do any administation of estates, Probate etc or any litigtion, only the predeath side of things.

 

[Paul@PFI]

Terry - Here is question for asset protection. Person has an exposure to a bank claim. Basically a $120K loan for a now valueless forestry scheme asset - The bank gave security over the valueless asset. Now they are looking beyond that asset and asking for new assets (like cash). She has the $120K in an offset which I argue is at risk. The don't know about that yet. The property equity is trivial and I don't see a huge asset risk as the property has 80% LVR. Two different lenders.

If she lent the $120k to her SMSF as a related party lend on terms that meet LRBF and SMSF invested it under a LRBF as a single acquirable asset what asset protection concerns might work / fail ?? Could this hide the asset until the smoke clears ... and avoids preservation.

 

[Terry_w]

The $120k would be still hers if she lent, but would be more work for the bank to get at (slightly). If she went bankrupt she would have to declare this. If she contributed to super it would be safer, but could still possibly be got at as an out of character contribution.

Even if she keeps the property any future equity, even after she comes out of bankruptcy, could be attacked by the trustee in bankruptcy.

If property held joint tenants she should consider severing and changing to TIC in case her spouse were to die while she bankrupt - inherit automatically and then whole house at risk.