SMSFs and Family Trusts are both similar in that they are used as to manage and accumulate wealth.
The table below shows the differences between both structures:
| Features | Self-Managed Super Fund | Family Trust |
|---|---|---|
| Primary Goal | Retirement savings (Sole Purpose Test) | Wealth creation & asset protection |
| Tax Rate | 15% (accumulation); 0% (pension phase) | Beneficiaries’ marginal rates |
| Access | Restricted until a “condition of release” is met | Immediate access at any time |
| Regulation | High (regulated by the ATO and an annual audit is required) | Low (State laws, no mandatory audit) |
| Asset Use | Strictly no personal use | Flexible |
While both offers a strong asset protection, they must be set up and managed properly in order for the asset protection to function effectively.
For an SMSF, as secure as the structure may be when protecting retirement assets, it is now without its drawbacks and limitations.
The main limitation in an SMSF is that assets cannot be accessed without meeting a condition of release and for drawbacks, SMSFs are under strict regulations that must be complied in order to continute enjoying a concessional tax advantage. One other drawback would be in the event of bankrupty where a bankrupt Trustee has made irregular contributions into the SMSF prior to declaring bankruptcy and it may be seen as a way to divert their assets from creditors.
This article from a specialist legal adviser provides more information on circumstances when asset protection fails for both an SMSF and a Family Trust.