To maximise the value of any investment by an SMSF in property, it is crucial that trustees obtain advice to determine if this strategy is suitable. Shubha Rao, Senior Associate in our Property Law team, explains.

Introduction

It is a common strategy for investors to purchase properties through their self-managed superannuation funds (SMSF). While such a plan may be in line with an SMSF’s investment strategy, SMSFs are highly regulated and SMSF trustees must be aware of the regulations to ensure that any property purchases are conducted within the rules for SMSFs.

What conditions apply to the property purchase?

For SMSFs to purchase property, the following general criteria must be satisfied:

The purchase must meet the 'sole purpose test' (i.e. for the purpose of solely providing retirement benefits to fund members);
The property must not be acquired from a related party of a fund member;
The property cannot be lived in by a fund member or any fund members' related parties;
The property cannot be rented by a fund member or any fund members' related parties (unless the property is commercial property and the terms are competitive commercial terms); and
The deposit for the purchase must be paid from the SMSF.

Purchasing property with loan funds

If trustees are intending to purchase the property with loan funds, there are a number of additional factors to be taken into consideration. To borrow funds, an SMSF can only enter into a limited recourse borrowing arrangement (LRBA). The key factors to be considered with respect to LRBAs are as follows:

A separate bare trust will need to be set up with the bare trustee (usually, a corporate trustee) being the registered proprietor of the property.
Under an LRBA, should there be a default on the loan, the lender’s rights must be limited to the property held under the bare trust only, which serves to quarantine any other assets of the SMSF from the lender.
There must be a “single acquirable asset”. This means that if a building is on one title and a carpark on another title, then either cash will need to be used by the SMSF to purchase the carpark, or a further separate bare trust needs to be established and another LRBA entered into with the trustee of the further bare trust.
Pursuant to an LRBA, the property cannot be improved and the nature of it must not be changed, which places restrictions on what the SMSF can undertake with respect to the property. If an SMSF is looking to buy vacant land, these restrictions will significantly hinder the SMSF’s ability to develop the land.

To maximise the value of any investment by an SMSF in property, it is crucial that trustees obtain advice to determine if this strategy is suitable.

How can Sharrock Pitman Legal can assist?

As Accredited Specialists in Property Law, our lawyers can advise property investors on options available to ensure that the investment is structured to deliver long-term financial benefits to an SMSF holding.

If you are considering purchasing real estate as a financial asset and would like advice purchasing property in Australia or setting up an SMSF, please do not hesitate to contact our Property Law team on 1300 205 506 or via email at property@sharrockpitman.com.au.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.‍

Written by a member of our Legal Team

Shubha Rao

For further information contact

Shubha Rao

Shubha Rao is a Senior Associate in the Property Law team at Sharrock Pitman Legal.

What happens to my superannuation when I die?

Taxes and deceased estates

To maximise the value of any investment by an SMSF in property, it is crucial that trustees obtain advice to determine if this strategy is suitable. Shubha Rao, Senior Associate in our Property Law team, explains.

However, in this article we will set out the factors that influence how long it will take to obtain a Grant of Probate and to administer an estate in Victoria.

The basics

First things first: what is a Grant of Probate? A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will. Without Probate, the asset holders (say a bank or share registry) cannot be satisfied as who has the correct authority to receive the deceased's assets and may refuse to pay out.

Sometimes, for smaller estates or if assets are mostly jointly owned with a surviving spouse, asset holders might agree to release payment without requiring a Grant of Probate. This is usually on the basis that the person who receives payment promises to repay (or Indemnify) the asset holder if it turns out they paid to the wrong person.

If there is no Will, then you cannot obtain a Grant of Probate. Instead you obtain Letters of Administration. This is effectively the same, in terms of authorising someone to administer the estate, and would usually be obtained by the person who is the closest next-of-kin to the deceased.

“A Grant of Probate is effectively a document issued by the Supreme Court of Victoria which formally authorises an executor to manage the estate of a deceased person in accordance with their Will.”

Timeframes for Probate in Victoria

In order to obtain a Grant of Probate, the Supreme Court needs to be given information about the assets and liabilities of the estate, the deceased person, the witnesses to the Will, the executors and the Will itself. An advertisement of your intention to apply for Probate must also be published on the Supreme Court website for at least 14 days prior to any application being lodged.

Often, making enquires to obtain all the necessary information can take a number of weeks. Also, you will need the Death Certificate for the application for Grant of Probate and possibly for making proper enquires regarding the assets and liabilities. Waiting for the Death Certificate to issue can therefore add a few more weeks to the process. Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.

The Court itself usually does not take long to process the application (maybe another 1 to 2 weeks) and this is completed using the electronic Supreme Court filing system. This means you do not have to go to a Court hearing. The timeframe for processing applications for Letters of Administration is even less, given that there is no Will document for the Court to consider. There is also a general discretion for the Court to raise a 'Requisition' asking for more information before they review the application - this can sometimes delay matters.

“Overall, if you have your application for Grant of Probate lodged within 1 to 2 months from the date of death, you are making timely progress.”

So, here we are a few months after death and you finally have a Grant of Probate or Letters of Administration. It is important to remember that this is the start of the estate administration and not the end. For a very simple estate, you might only need a further month or so to cash the assets and pay them to the correct beneficiaries. However, it can often be more complex than that. Factors that determine the timeframe to administer the estate include:-

Some assets will take time to cash or transfer. For example, if selling a property, final settlement might be 60/90/120 days from the day of sale.
There is a 6 month period for challenges to be brought against the estate and executors must wait until this period expires before distributing the estate, if there is any risk that a disgruntled family member might come forward.
There might need to be final tax returns for the deceased or for the estate. Failing to wait for the ATO to process these could leave the executor personally liable for a tax bill.

You might need to advertise for creditors to come forward and wait for a period of months while this advertising timeframe expires. This protects the executor if they are unsure of all of the deceased's financial dealings and creditors.
It might not always be a good time to immediately cash estate assets. For example, the shares just took a nose-dive, do you still sell regardless of available price?

There is a general rule that executors have an 'executor's year' to complete the estate administration. This means that you should be aiming to have the estate finalised and distributed within 12 months from the date of death.

Liability limited by a scheme approved under Professional Standards Legislation.

Need help with Probate?

Our expert legal team is ready to take your call!

Mitchell is the Managing Principal of Sharrock Pitman Legal. He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate and can answer all your questions related to probate.

For further information, contact Mitchell on his direct line:

DIRECT LINE:

(03) 8561 3318

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Land Development and Joint Ventures

What you need to know when purchasing property in a Self-Managed Super Fund

To maximise the value of any investment by an SMSF in property, it is crucial that trustees obtain advice to determine if this strategy is suitable. Shubha Rao, Senior Associate in our Property Law team, explains.

Introduction

What conditions apply to the property purchase?

Purchasing property with loan funds