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SMSF


What are the conditions of a SMSF according to the SIS Act?

Speaking generally, for an SMSF to be complying:

  1. It must have 4 (or fewer) members;
  2. Each individual trustee must also be a member;
  3. Each director of a corporate trustee must also be a member;
  4. No member can be an employee of another member - unless the two members are related; and
  5. No trustee can receive payment from the fund for their services as trustee.

There are some limited exceptions to numbers 2 and 3 above.

Can fund members be non-Australian residents?

Yes, fund members can be non-Australian residents. However, there will likely be serious tax consequences if all members of the SMSF reside overseas for an extended time.

Can a member be under a "legal disability" and still be a member?

Yes, a member can be under a "legal disability" (other than on account of them being younger than 18), as long as the legal personal representative of the disabled member is a fund trustee or, where a member does not have a legal personal representative, a parent or guardian of the disabled member is a fund trustee.

If the trustee is a company, then the legal personal representative of the disabled member, or where a member does not have a legal personal representative, a parent or guardian of the disabled member, must be a director of that company in place of the member.

Please note that the Cleardocs SMSF products are only suitable where a member does not have a legal personal representative and wishes to appoint a parent or guardian to act as an individual trustee or director of the corporate trustee.

Can a member be less than 18 years old?

Yes, a person who is under 18 can be a member of an SMSF.

If the member has a legal personal representative, then the member's legal personal representative must be a trustee of the fund or a director of the corporate trustee in place of the member.

If the member is under 18 and does not have a legal personal representative, then the member's parent or guardian must be a trustee of the fund or a director of the corporate trustee in place of the member.

Remember however, that the Cleardocs SMSF products are only suitable where a member does not have a legal personal representative.

What are the conditions of single member SMSFs according to the SIS Act?

Speaking generally, for an SMSF has only one member, then the SIS Act requires that:

1. If the trustee is a company, then the member must be:
1.1 the sole director; or
1.2 one of only 2 directors who are relatives; or
1.3 one of only 2 directors and the other director must not employ the member.
2. If the trustee is an individual:
2.1 the member is one of only 2 trustees who are relatives; or
2.2 the member is one of only 2 trustees, and the other trustee must not employ the member.

Remember, the law says that trustees of an SMSF cannot receive payment from the SMSF for duties or services performed in relation to the SMSF.

If the trustee is a company, should it be the Principal or Employer Sponsor?

No, the corporate trustee shouldn't establish the SMSF. The person or entity who establishes the SMSF — the Principal or Employer Sponsor — is party to the SMSF deed and executes it with the trustee. The corporate trustee and the Principal or Employer Sponsor should not be the same person, as there should be at least 2 parties to the deed.

The person or entity who establishes the SMSF can be any other company or any person, including any of the Fund's members. If the person or entity who establishes the SMSF is not the Employer Sponsor, they will have no ongoing role in the Fund once it has been established, and have no further obligations under the SMSF deed. The Employer Sponsor will have an ongoing role and ongoing obligations under the SMSF deed as the employer sponsor, such as to consent to any variation of the Fund's deed.

What happens if a beneficiary named in a member's death benefit agreement, or binding death benefit nomination, dies?

The Cleardocs interface for these products allows the customer the following choices to cater for a beneficiary or beneficiaries dying before the member:

  • If the document names more than one beneficiary, then the deceased beneficiary's portion of the death benefit can be either:
    • distributed to the remaining beneficiaries in equal proportions;
    • distributed to the member's legal personal representative (to be dealt with as part of the member's estate); or
    • paid in accordance with the fund's trust deed and superannuation law, which will confer a discretion on the trustee.
  • If the document names more than one beneficiary and all beneficiaries die before the member, then the member's death benefit can be either:
    • distributed to the member's legal personal representative (to be dealt with as part of the member's estate); or
    • paid in accordance with the fund's trust deed and superannuation law, which will confer a discretion on the trustee.
  • If the document names only one beneficiary, then the deceased beneficiary's portion of the death benefit can be either:
    • distributed to the member's legal personal representative (to be dealt with as part of the member's estate); or
    • paid in accordance with the fund's trust deed and superannuation law, which will confer a discretion on the trustee.

What happens if the nominee of a Death Benefit Nomination dies at the same time (say, in a car accident) as the nominator?

If the nominee of a Death Benefit Nomination dies at the same time as the nominator, the law says that the oldest person is taken to have died first.

If more than two persons die simultaneously then they are taken to have died in the order from oldest to youngest.

So, if two people nominate each other in their Death Benefit Nominations, and the nominations:

  1. Are binding, then the older person's nomination will take effect and the death benefit will pass to the younger person. The younger person's binding nomination cannot take effect because the nominee is deceased: the death benefit will then be paid by the trustee in accordance with the SMSF's trust deed; and
  2. Are non-binding, then the trustees will use their discretion and distribute the relevant members' benefits as they see fit and in accordance with the SMSF's trust deed.

What happens if all the trustees (directors of the trustee) die at the same time (say, in a car crash)?

In these circumstances, the law says that the oldest person is taken to have died first. If more than two persons die simultaneously then they are taken to have died in the order from oldest to youngest.

Concerning what happens if the trustees (directors of the trustee) have nominated each other in their death benefit nominations, then see the answer directly above.

After a trustee dies, their legal personal representative may act as either a trustee of the fund or as a director of a body corporate that is the trustee of the fund. So if all the trustees (or directors of the trustee) die at the same time, then the SMSF remains an SMSF until the death benefits are paid. At this point, the legal personal representative must cease to be a trustee and the fund will have to satisfy the basic conditions in order to continue as a SMSF - that is other members must have joined and become trustees.

Does the SMSF have to apply for an ABN?

Yes. The SMSF will obtain an ABN as part of registering with the ATO and choosing to become a regulated superannuation fund.

The trustee(s) needs to complete and sign the "Application for ABN registration for superannuation entities" form. This can be downloaded from http://www.ato.gov.au/

Auditing a Self-Managed Super Fund in 2009 and checking:

• a Cleardocs Trust Deed (Cleardocs Deed)
against
• the AASB Self Managed Superannuation Fund Trust Deed Audit Planning Checklist

When you are auditing an SMSF which has a Cleardocs Deed, you can use the table below to review the Cleardocs Deed against the checklist published by the Auditing and Assurance Standards Board in Guidance Statement GS 009 - Auditing Self Managed Superannuation Funds.

Cross-references to the Cleardocs Deed

In the middle column of the table, we refer you to where the relevant topic is dealt with in the Cleardocs Deed. The reference is to the part number (letter) and the relevant heading. We cannot provide clause numbers because they vary between deeds depending on, for example, whether the trustee is a company.

Which version of the Cleardocs Deed works with this checklist?

This checklist works with most versions of the Cleardocs Deed. It works best for Cleardocs Deeds for SMSFs set up, or updated, after 23 April 2007, these are versions 6, 7, 8 and 9 of the Cleardocs SMSF Deed. On that date, Cleardocs updated the Cleardocs Deed for the Simpler Super (later Better Super) changes.

How to find out which version of the Cleardocs Deed the SMSF has

You can check which version of the Cleardocs Deed a particular fund has by logging on at Cleardocs, then:

  • clicking "My documents" — the button is towards the top of the left-hand column;
  • finding the SMSF in the lists showing — remember to look in the list for Superannuation Trust (SMSF) and for Update to SMSF; and
  • looking at the small light-blue button after the SMSF's, or client's, etc.name. That button shows the SMSF's deed version number — for example "Version 7 of 9".

If you click that button, then you can see a summary of the changes made since the relevant fund's deed was set up or last updated.

Glossary

There is a glossary of defined terms at the end of the table.

Any questions?

If you have any questions about this checklist, you can call Cleardocs on 1300 307 343.

  • Cleardocs will answer all your administrative queries. These include, queries about its service, website, registering as a user, payment or feedback. If your question is a legal question, then Cleardocs can arrange for you to use the free legal helpline at Maddocks.
  • Maddocks will answer all your questions about the nature, content, use, consequences, drafting and effectiveness of Cleardocs documents.

This document — and all the legal information in it — is provided by our lawyers at Maddocks.

AASB Ref

AASB Questions to be addressed in examining SMSF Deed

Cleardocs Deed Reference — Part number (letter) and clause heading

(We cannot provide clause numbers as they vary between deeds depending on, for example, whether the trustee is a company.)

Maddocks Comments

A

Establishment and Execution

A.1

Is the date of establishment of the SMSF recorded?

Schedule 1

Part A

Establishment of the Fund

Yes.

A.2

Has the trust deed been:

  • Properly executed?
  • Signed by all the members who are individual trustees?
  • Witnessed?
  • Dated?
  • Stamped (if required)?

-

You will need to review the relevant deed on a case by case basis.

A.3

Do the rules incorporate SISA, SISR and applicable taxation rules?

Part A

Establishment of the Fund

The Deed establishes the fund under the SISA.

Part A

Deed Subject to Superannuation Law

The Deed requires the fund to be operated so that it qualifies for concessional treatment under the ITAA36 and ITAA97.

A.4

Does the deed outline the core and ancillary purposes of the SMSF?

Part A

Purpose of the Fund

This clause states the SMSF's sole or primary purpose.

A.5

Does the deed require an irrevocable election to be made to be a regulated superannuation fund or a fund subject to the SISA and SISR?

Part A

Establishment of the Fund

The Deed:

  • states that the SMSF is an indefinitely continuing SMSF; and
  • requires the fund to be operated so that it qualifies for concessional tax treatment under the ITAA36 and ITAA97.

A.6

Does the deed have a clause which deems the appropriate legislation into or out of the deed to allow the SMSF to remain complying?

Part A

Deed Subject to Superannuation Law

If an obligation that superannuation law imposes on the trustees of the SMSF is not expressed in the Deed, then the Deed regards that obligation as incorporated into it.

B

Amendments to the Deed

B.1

Does the deed allow amendments?

Part N

Variation

The trustee may vary the Deed prospectively or retrospectively with the written consent of the employer-sponsor (if there is one). The variation may be by oral declaration, written resolution or deed.

Part N

Limits on Power to Vary

The Deed places limitations on the trustee's power to vary the Deed.

B.2

Has the trust deed been amended since the last audit?

If so:

  • Has the deed amendment been properly executed?
  • Is confirmation of the deed's compliance with SISA and SISR required from the solicitor or other party involved in the amendment?
  • Is the amendment signed-off by the current trustees?
  • Could the amendments impact the audit?

-

You will need to review the fund's register and all relevant documents on a case by case basis.

C

Trustee and Membership

C.1

Does the trust specify who may be a trustee?

Either:

  • Two or more individual trustees; or
  • A trustee company.

Part A

Trustee(s) of the Fund

Schedule 1

The initial trustee is named in the Deed.

C.2

Does the deed specifically identify the trustee as either an individual or a corporate entity?

Part A

Trustee(s) of the Fund
Schedule 1

The Deed identifies the name and address (and ACN if applicable) of the trustee.

C.3

Are all individual trustees or directors of the trustee company required to be members?

Part B

Date of Additional Member's Commencement as Trustee

The Deed provides that:

  • if the individual members are the trustees, then an additional member becomes trustee of the fund on the date his or her membership commences; and
  • if a company is the trustee, then an additional member becomes director of the trustee of the fund on the date his or her membership commences provided that the trustee has done everything to appoint the additional member as a director of the trustee.

C.4

Does the deed permit members to be:

  • A non-working spouse?
  • A retired person?
  • A child?

Part D

Member to keep Trustee Informed

Part B

Minor as Member

No relevant restrictions on membership.

C.5

Does the deed limit the maximum number of members to 4 members?

Part B

Conditions must be met

Trustee must not accept a person as an additional member if this would mean that the total number of members would be more than 4.

C.6

Is membership open to anyone else?

Part B

Trustee may appoint Additional Members

Trustee may appoint additional members.

C.7

Do the members of the SMSF meet these two definitions?

  • "No member of the SMSF is an employee of another member, unless related." and
  • "No trustee receives remuneration for their services to the SMSF."

Part B

Conditions must be met

Trustee must not accept additional members if the person is in an employment relationship with a member, unless they are related.

Part M

Trustee may not Charge Fees

Trustee must not charge any fees in relation to acting as trustee under the Deed or performing any services in respect of the fund.

C.8

Does the trust deed contain the Trustee Covenants?

-

No, and the Deed is not required to as section 52 of the SISA provides that if the governing rules of an SMSF do not contain the trustee covenants set out in section 52(2), then they will be deemed to contain those covenants.

D

Audit and Financial Reports

D.1

Does the trust deed require the appointment of an approved auditor?

Part M

Audit

Auditor must be qualified in accordance with superannuation law.

D.2

Does the trust deed require the trustees to prepare a financial report annually and for it to be audited?

Part M

Audit

Trustee must arrange for annual audit.

D.3

Does the trust deed require the trustees to keep the minutes and records of trustee decisions for at least 10 years and accounting records and signed financial reports for at least 5 years?

Part M

Trustee to keep Records, Accounts, Books etc.

Trustee must ensure that all records, books, accounts, minutes, reports and other documents are maintained and kept safe in accordance with superannuation law for the period required by that law:

  • SISA section 35B(4): accounting records to be kept for 5 years; and
  • SISA section 103: minutes of all meetings and elections to be retained for 10 years.

E

Contributions

E.1

Does the deed contain a general power to accept all contributions permitted by superannuation law?

Part D

Member Contributions

Employer Contributions

Other Contributions

Contributions etc Not Accepted

Under these provisions, the trustee may accept all contributions permitted by superannuation law.

Does the deed allow:

  • Concessional contributions, including:
    • Employer contributions, including contributions made pursuant to a salary sacrifice agreement?
    • Member contributions for which a tax deduction is claimed?

Part D

Member Contributions

With member's and the participating employer's consent, contributions can be paid by deduction from wages or salary

  • Non-concessional contributions, including:
    • Member contributions for which no tax deduction is claimed?
    • Eligible spouse contributions?

Part D

Other Contributions

With the consent of the trustee and the member, then any other person — including a spouse of that member — may make contributions to the fund in respect of that member.

  • Contributions in respect of minors?

-

No relevant restrictions in Deed. See "Other contributions" clause (row above) which enables all other forms of allowable contributions.

  • Rollovers and transfers in?

Part L

Trustees' Power to Receive Transfer

The trustee may take over, or acquire by transfer, from an 'approved benefit arrangement' (which includes another super fund):

  • any part of the assets of that arrangement that represents the interest of a participant in that arrangement;
  • if that participant has become, or is to become, a member or beneficiary of the fund.
  • Government co-contributions?

Part D

Other Contributions

With the consent of the trustee and the member, any other person - including any State, Territory or Federal government — may make contributions to the fund in respect of that member.

  • Contribution splitting to a spouse

Part D

Contributions-Split Requests"

Member may ask the trustee that contributions made to the fund in respect of that member in the previous financial year be:

  • transferred to the member's spouse; or
  • transferred to the trustee of an approved benefit arrangement of which that member's spouse has joined or is eligible to join.
  • Contributions by members who are under 65 and not working?

Part D

Member to keep Trustee Informed

No, but member must tell the trustee as soon as practicable if they are aged 65 or older and cease gainful employment.

  • Contributions by members who are working part-time and are over 65 and under 75?

-

No relevant restrictions in Deed.

  • Mandated contributions to be accepted at any age?

-

No relevant restrictions in Deed.

  • Contribution splitting arrangements pursuant to family law matters?

Part K

Payment Splits

Trustee may vary benefit and make payment to non-member spouse or a transfer-in in respect of the non-member spouse, pursuant to a splitting agreement or court order under Part VIIIB of the FLA.

E.2

Does the deed allow for in-specie contributions of assets to be made by members of related parties?

Part D

Other Contributions

How Contributions to be Made

With the consent of the trustee and the member, any other person (including a spouse of that member or another member) may make contributions to the fund in respect of that member.

A contribution to the fund may be made by the transfer of assets in accordance with superannuation law.

E.3

Does the deed permit spouse accounts and may employers make contributions to spouse accounts?

Part C

Contributions Split Requests

Member may ask the trustee that contributions to the fund in respect of that member be allotted to the accumulation account of that member's spouse.

Accommodated by provision for contribution splitting.

E.4

Does the deed provide a basis for rejecting excess contributions?

Part D

Other Contributions not Accepted

Trustee may refuse to accept excess contributions.

E.5

May excess contributions tax levied on the member be paid by the SMSF, irrespective of preservations rules and conditions of release?

Part D

Permissible Actions if Certain Contributions Accepted

Trustee may:

  • release funds to the member where the trustee has received a member release authority; or
  • release funds to the Commissioner of Taxation where the trustee has received an ATO release authority.

F

Benefit Payments

F.1

Does the SMSF require compulsory cashing of the members balance at a specific age?

Part F

Vesting and Compulsory Payment

No. Trustee must cash, or commence to cash, a member's benefit entitlement as soon as practicable after the member dies or the entitlement has vested.

Part F

When Payments of Preserved Payment Benefits Allowed

Trustee may pay a member when the member reaches 65.

F.2

Does the SMSF require a lump sum benefit to be paid in lieu of a pension?

Part G

Trustee's Right to Commute Pensions Generally

On written request by a pensioner, trustee may commute any part of a pension to a lump sum then pay it to the relevant person or their estate.

G

Pensions

G.1

Does the deed expressly allow for payment of pensions by the SMSF, including:

Account based pensions?

Part G

Trustee's power to Pay Pension

Trustee Must establish Pension Account

Trustee may pay any allowable pension including an accounts based pension. The pension may be of any type permitted by superannuation law.

Transition to retirement income stream?

Part G

Trustee's Power to Pay Pension

The relevant member or beneficiary may choose the type of pension that is to be paid, including a transition to retirement pension.

Allocated pensions?

Part G

Pensions

No. No longer permitted under super law.

Term allocated or market linked or growth pensions?

Part G

Pensions

No. No longer permitted under super law.

Complying lifetime or fixed term pensions?

Part G

Pensions

No. No longer permitted under super law.

Non-complying lifetime or fixed term pensions?

Part G

Pensions

No. No longer permitted under super law.

G.2

Does the deed allow for commutation of a pension?

Part G

Trustee's Right to Commute Pensions Generally

On written request by a pensioner, or in accordance with superannuation law or the Deed, the trustee may commute any part of a pension to a lump sum, and pay it to the relevant person or his or her estate.

G.3

Does the deed allow for the segregation of assets to meet pension requirements?

Part G

Segregation of Assets and Valuation

Trustee may segregate from other assets those assets which are to fund a pension under the Deed.

G.4

Does the deed make reference to nominated beneficiaries?

Part H

Death benefit payments

The Deed provides:

  • for binding and non-binding nominations; and
  • for death benefit agreements which form part of the Deed and bind the trustee concerning payment of a death benefit.

If the fund has a Cleardocs deed from version 9 or later (which Cleardocs implemented on 4 May 2009), then the Deed also allows a member to make a Death Benefit Agreement. This Agreement binds the trustee(s) until the member revokes or replaces it. In this way, the member can avoid the risks and uncertainty around binding death benefits lapsing after three years.)

H

Reserves (If applicable)

H.1

Does the deed provide rules in relation to the establishment, maintenance and operation of SMSF Reserves?

Part C

Trustee may establish or maintain other accounts or reserves

Trustee may establish or maintain any other account for reserve of the fund that the trustee thinks necessary or desirable or that is required or permitted by super law.

H.2

Does the deed require different or parallel investment strategies for each reserve account?

Part C

Trustee may Establish or Maintain Other Accounts or Reserves

No. However the trustee may adopt such practices as the trustee in its discretion thinks fit.

I

Investments

I.1

Does the deed provide powers to the trustees to invest the assets of the SMSF?

Part E

Authorised Investments

Trustee must invest any assets of the fund that are not required for payment of benefits or other amounts under the Deed.

I.2

Does the deed specify specific assets/asset classes that the SMSF may invest in?

Part E

Authorised Investments

This clause lists the types of investment in which the assets may be invested.

I.3

Does the deed prevent investments in, or loans to, related parties?

Part E

Forbidden Assessments

Trustee must not make an investment in the form of a loan or other financial assistance to a member or a relative of a member.

I.4

Does the deed require an investment strategy to be formulated and given effect?

Part E

Strategy

Trustee must formulate one or more investment strategies for the fund.

J

Borrowings

J.1

Does the deed prohibit borrowings?

Part L

Limit on Borrowing

When Borrowing is Allowed (Including "Limited Recourse Borrowing Arrangement")

Trustee must not (except as provided for in the Deed and under superannuation law) borrow money or maintain an existing borrowing of money.

Trustee may borrow or maintain a borrowing of money in three circumstances:

  • to enable trustee to pay a surcharge or advance instalment;
  • to enable the trustee to settle a transaction to acquire any one or more of the securities listed in section 67(3)(a) of the SIS act; and
  • under an limited recourse borrowing arrangement.

J.2

Does the deed permit borrowing in specific circumstances, including:

  • Temporary borrowings which are required for the payment of member benefits, short term settlement of securities or superannuation contributions surcharges (no longer levied)?

Part L

When Borrowing is Allowed (Including "Limited Recourse Borrowing Arrangement")

Trustee may borrow or maintain a borrowing of money:

  • to enable trustee to pay a surcharge or advance instalment; and
  • to enable the trustee to settle a transaction to acquire any one or more of the securities listed in section 67(3)(a) of the SIS act.
  • Borrowings for limited recourse borrowing arrangement?

Part L

When Borrowing is Allowed (Including "Limited Recourse Borrowing Arrangement")

Trustee may borrow or maintain borrowing of money under an limited recourse borrowing arrangement.

K

Winding-Up

K.1

Does the deed provide for the winding-up of the SMSF?

Part N

Trustee may elect to Wind up Fund

Trustee may wind up the fund in the following cases:

  • trustee decides to wind up the fund;
  • employer-sponsor gives the trustee written notice that it has decided to wind up the fund; and
  • there are no longer any members of the fund.

Glossary

FLA means the Family Law Act 1975 (Cth).

ITAA36means the Income Tax Assessment Act 1936 (Cth).

ITAA97 means the Income Tax Assessment Act 1997 (Cth).

SISA means the Superannuation Industry (Supervision) Act 1993 (Cth).

SISR means the Superannuation Industry (Supervision) Regulations 1994 (Cth).

Trustee means, in relation to a fund, scheme or trust:

(a) if there is a trustee (within the ordinary meaning of that expression) of the fund, scheme or trust — the trustee, or

(b) in any other case — the person who manages the fund, scheme or trust.

Trustee Covenants means the following trustee covenants contained in section 52 of the SISA:

(a) to act honestly in all matters concerning the entity;

(b) to exercise, in all matters affecting the entity, the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with

property of another for whom the person felt morally bound to provide;

(c) to ensure that the trustee's duties and powers are performed and exercised in the best interests of the beneficiaries;

(d) to keep the money and the other assets of the entity separate from any money and assets, respectively;

(e) not to enter any contract, or do anything else, that would prevent the trustee from, or hinder the trustee in, properly performing or exercising the trustee's powers;

(f) to formulate and give effect to an investment strategy that has regard to the whole of the circumstances of the entity;

(g) if there are any reserves of the entity, to formulate and give effect to a strategy for their prudential management, consistent with the entity's investment strategy and its capacity to discharge its liabilities as and when they fall due; and

(h) to allow a beneficiary access to any prescribed information or any prescribed documents.

What does an SMSF trustee(s) need to do if a member or one of the beneficiaries changes their name due to marriage?

The trustee of the SMSF will need to record the name change in trustee minutes. However, there is no need to do a Deed of Variation or amendment to the SMSF's deed.

Further, if you have not recently updated your SMSF's deed, then you may wish to order a SMSF Update with Cleardocs. When completing the interface, enter the person's current legal name. There is no provision to include previous names in the Cleardocs' interface.

How do I change the name of an SMSF?

You can change the name of your SMSF whenever you like, and as many times as you like. It will generally require you to:

  • vary the fund's trust deed — read more about this here; and
  • notify the ATO.

How do I remove a member of an SMSF?

Superannuation law permits removal of a member of an SMSF.

If your SMSF has a Cleardocs trust deed: A person's membership ceases if certain conditions are met, for instance, that member's benefits are paid out of the fund, assets are transferred out of the fund or benefits to the member cease to be payable. A resolution of directors/trustees is not required to remove the member, although they may pass resolutions reflecting that certain conditions have been met and that the person's membership will automatically cease.

If your SMSF does not have a Cleardocs trust deed: You will need to review the terms of your trust deed to determine whether (and in what circumstances), a member ceases to be a member of the fund.

You can change trustees of your SMSF here.

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The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.