The Coach: Family self-managed superannuation funds

The Weekend Australian, July 30, 2016:

We have a self-managed superannuation fund and are considering including our adult children in the fund. We want to pool our funds as a family for investment purposes. What should we be aware of in making this decision?

A family SMSF can deliver advantages to all the members of the fund. However, you need to be aware of the pitfalls and ongoing complexities that aggregating family superannuation assets can create.

The maximum number of members of a SMSF is four, so you may have some hard decisions to make if you have more than two children. Commencing a second SMSF could be considered, subject to complexity and the costs involved.

Generally all members of a SMSF must be trustees of the fund. All trustees have legal obligations and are responsible for the management and the collective decisions of the fund. Please consider the capability of your adult children to take on this responsibility.

It can be attractive for adult children in their late 30s to early 40s that have a healthy superannuation balance or greater life experience to consider joining the family SMSF. Some of the advantages include allowing members to pool funds and purchase larger investment assets that neither generation would be in a position to afford otherwise, such as property and sharing the costs of running the fund.

It is important that the investment strategy of the fund takes into consideration the intergenerational needs of the trustees. Retired members may require a greater income focus, whereas younger members may require more exposure to growth assets. Likewise, you need to have a clear strategy as to when it is appropriate to dispose of fund assets.

The circumstances of all members and their extended family should be given consideration before fixed assets such as property are purchased. Your children may marry (or divorce) or wish to manage their own SMSF with their spouse.

All trustees and members must agree on the decisions and running of the fund.

It is your trust deed that will assist should you have a difference of opinion on basic matters (such as investments), and having deadlock-breaking provisions can allow a casting vote.

All trustees of the fund need to sign off on annual accounts and taxation returns. Failure to complete these basic tasks on time does create headaches and administrative penalties from the ATO.

Having an SMSF in place with elderly members can be a cause for concern if they lose mental capacity or become incapable of making decisions as a trustee. In the longer term, adult children can take leadership in the running of the fund when their parents become elderly.

Care need to be taken when using a SMSF to pass your wealth onto the next generation.

Visit the Wealth section at www.theaustralian.com.au to send your questions to Andrew Heaven, an AMP financial planner at WealthPartners Financial Solutions