3 risks to consider before investing in SMSFs

According to the Australian Tax Office (ATO) there were 545,334 SMSFs by the end of December 2014 with 6,789 of such funds opened in just the month alone.

Whereas Self-Managed Super Funds or SMSFs can be an ideal superannuation structure, they may pose some risk depending on your situation.

Here is a rundown of the risks you should consider when investing in such financial structures.

1. Insurance cover in rollover
Certain insurances that may have been part of your standard superfund may not rollover into an SMSF. Rolling over a super into an SMSF closes up your standard superfund. Since the cover is not transferable, insurance may need to be applied for again and depending on health it may not be available. As much as possible, talk to an experienced Financial Planner who can help you secure insurance and manage your investments.

2. Improper trustee structure
Setting up a proper trustee structure for your super fund is crucial for investing and lending in real estate. Lenders are particular about trustee structures requiring applicants to adhere to such regulations before they can get a loan.

You have two options: a corporate trustee or an individual trustee. Under individual trustee, each member becomes an SMSF trustee. Under corporate, the company acts as the trustee for the fund while the members become directors. You have to decide thoroughly on what trustee structure you will set up.

3. Supers that have gone dormant
Dormant means inactivity and something you do not want your investments to head to. You have to make sure that SMSFs work for you otherwise letting them sit around brings you no value. Strive for profit and not just maintenance.

You can choose to self-manage your SMSF but inexperience and lack of knowledge could only put you at risk. A better way to handle SMSFs is to choose a reliable, professional, knowledgeable, and experienced financial planner to evaluate your situation and offer suitable advice and options for services.