An appropriate level of documentation is imperative for protecting assets of SMSF members, specifically when a member becomes insolvent.
Advisers need to ensure their self managed superannuation fund (SMSF) clients keep appropriate documentation regarding contributions, according to a legal expert in the sector.
In particular, document maintenance is important if the assets in a fund are to be protected when a member becomes insolvent.
A good level of documentation can help prove the main purpose of a contribution in question was not to thwart the creditors of the insolvent member.
The proper paperwork can show a contribution was not out of character, no matter how unusual it may seem compared with other contributions to the fund at the time.
"If you have a client who is self-employed or runs their own business, and their contribution pattern is not one of a steady or level nature....it really would be worthwhile to document how those contributions were formulated in terms of characteristic and amount," Townsends Business and Corporate Lawyers special counsel Michael Hallinan said.
In order to lay claim to an insolvent SMSF member's contributions, under s128B of the Bankruptcy Act 1966 a bankruptcy trustee must satisfy that the contribution would have been part of the member's estate, and available to creditors, had the contribution not been made to the fund.
It must also be proven the main purpose of the contribution was to stop creditors from receiving those monies.
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