Making a plan, understanding the options before entering an SMSF and being flexible to changing circumstances were imperative to exiting the fund at the right time and as smoothly as possible, according to Omniwealth.
“It’s not just death and ageing that triggers a fund wind up – it could be low fund balance, the health status of members or divorce,” Omniwealth senior financial planner Genene Wilson said.
“When it comes to SMSFs, exiting at the right time and in an orderly fashion can be a difficult decision to make for trustees and members.
“Begin as you intend to end.”
Wilson revealed she often met with clients who were ageing and there were obvious signs of diminished capacity, physical decline, failing health and greater confusion of thoughts.
“Sometimes clients come to us to get the wind-up underway as they may have started to worry about their own capacity to continue running the fund,” she said.
“As a planner working across the spectrum of peoples’ financial life, we expect to see an increasing number of younger clients for whom running their SMSF is no longer viable or good for them.”
She said clients needed to be aware of several factors involved in winding up an SMSF, beginning with whether or not the fund was to be wound up and the time frame for doing so, then whether assets were to be cashed out, taken as a lump sum or rolled over to another fund, and if assets were to be transferred in-specie to the member or the new fund.
“[We need to] assess the costs to wind up the fund and the tax implications, as those monies will need to be set aside and paid before the fund is wound up and deactivated,” she noted.
“Refer to the trust deed to see if there are any requirements to be met in winding up the SMSF.
“Prepare a checklist of tasks to be actioned in the wind-up, capturing as many details as possible, as this will make the management of the wind-up easier and ensure that it is correctly wound up.
“It’s important to ensure that you avoid expensive mistakes such as additional tax returns, preparation of financial statements and audit.”
She said the importance of ensuring trustees and members had formally agreed to the closure of the fund, or under a corporate trustee structure, that directors had agreed to wind up the company.
“All of the financial year and prior year tax and compliance obligations should be up to date and interim financial statements prepared for the fund,” she said.
“Members should verify how they want their benefits paid, and the sale or transfer of assets should be arranged.
“From here, final accounts can be prepared and audit completed, the ATO notified and final expenses and taxes paid – it is prudent to keep the fund bank account open to receive income previously accounted for, tax refunds and the like.
“The fund has no assets remaining once it is wound up and the fund cannot be reactivated.”
In reality, most of the steps could be carried out by or with the assistance of a planner, accountant or SMSF administrator, however, the trustees and members of the fund should understand the process as not all tasks could be delegated and they were ultimately responsible, she added.
Omniwealth is a non-aligned Australian wealth advisory group.
