SMSFs involving many people can be complex and time-consuming to deconstruct, therefore when establishing an intergenerational SMSF, it is vital to discuss what will happen when it is eventually wound up, according to SMSF Association head of technical Peter Hogan.
In a recent AMP Capital SMSF Community post, Hogan said it was important to be aware of the benefits as well as the drawbacks of including children in an SMSF before making them members and trustees.
The winding up of an intergenerational SMSF was highlighted as an important aspect not to forget.
Hogan also said in terms of the practical aspects of adding children to a fund, there should not be any particular limitations as long as the trust deed allowed it.
“It’s also important all members, young and old, continue to contribute the amount to which they committed when the fund was established,” he noted.
“People’s circumstances change, and if that happens, it can affect a family member’s ability to continue to be a member of the fund.
“It’s worth thinking through these scenarios before the fund is set up and how the family will respond in their event.
“The right choice will be different for every family and it’s important to fully explore what it means to run an SMSF before establishing one.”
For slightly older children, it might make sense from a family business perspective to own business premises inside the SMSF, he added.
That could mean combining superannuation accounts to the right amount of funds in order to acquire commercial property, which was usually an expensive asset, he said.
“You might see children in their forties or fifties in the same fund as their parents so they can buy commercial property where the family business is located,” he said.
While there are advantages of being in the same fund, one of the drawbacks and risks could be that the children will not have as much say in how the money is managed, especially if the parents have substantially more wealth than the next generation.
“If everyone is in agreement, members can pool their investments together and all invest in the same way,” Hogan said.
Another risk was family members falling out, however, that could also happen between husband and wife trustees in a two-member fund, he pointed out.
