Transferring property within an SMSF to the next generation upon the death of a member could be tackled in a number of ways, but required robust planning in order to avoid major issues.
“[Key] to this is having the discussion with your client, at the time they’re purchasing the property, as to what they want the endgame or objective to be – if something happens to them both, what would they like to see happen to the property?” TAG Financial Services partner Michelle Griffiths told the SMSF Association National Conference in Adelaide today.
“Ensure you document it.
“At times it is actually dead simple. They just want to sell it and give their kids the cash.
“But we need to be realistic and it means we need to tell our clients to also be careful of what they expect of their children.”
Griffiths said an important aspect for advisers and accountants to place a greater focus on was how assets were dealt with upon the death of a member.
“Because as soon as you have illiquid assets, we may have a problem,” she said.
“If a member dies and leaves a spouse or a child who is underage, we can at least keep the pension running and therefore you don’t have to sell the property or get it out [of the fund].
“The problem comes when [the property] is going down to adult children, so the next generation are actually inheriting and we actually have to pay it out.
“That’s where we start having issues from the perspective of what do we do with that asset?”
She said one of the options was to sell the property and distribute the cash benefits among the children, however, it should not be assumed that was every clients’ objective.
“But often I find that the case is, which I see often with my clients, that they don’t actually want that to happen and instead they want to give property A to child number one, property B to child number two, et cetera,” she said.
“So the question then becomes about whether it is possible and feasible.
“We need to be thinking and planning proactively as to how that might work.”
Alternatively, some children decided to retain the property and keep it in the superannuation environment, she pointed out.
“A way to do that is to have the kids roll their super into the old fund and maybe make cash contributions to cash the fund up, then that cash is what we can use to pay the death benefit,” she said.
“Just because the property was the main asset at the time the member passed away, doesn’t mean that is that asset that you have to use to pay the death benefit.
“So sometimes you just have to think a bit outside the square as to how you might pay a death benefit out in this circumstance.”