SMSF trustees looking to make use of the pending six-member funds have been reminded having additional participants will create more opportunities to fund life insurance for all members and to receive insurance benefits at a lower tax level.
LightYear Docs chief executive Grant Abbott said when the proposed changes to allow six members in a fund take place, SMSF trustees should consider having their parents and children in the fund where applicable to benefit from a number of tax advantages.
“Six-member funds will be beneficial not just for younger members, such as children and siblings, but will allow trustees to be able to ‘look up’, and so if they have a parent under 75, they should get them into the fund for tax purposes,” Abbott said during a strategy webinar today.
He pointed out family-based six-member funds carried benefits for the funding of life insurance and the retention of benefits when a member dies.
“If there are parents or grandparents in the fund, use their resources, that is, the monies from the fund, to pay for insurance premiums for everyone down the chain,” he said.
“This works with members who have adult children and grandchildren in the fund, and where those members pay for insurance which is debited against the account of each individual in the fund.
“Effectively what they’ve got then is that any insurance payout can be passed on to children or grandchildren as an account-based pension to age 25 because they are children of the deceased.
“Where the fund has parents of the grandchildren with control, they can ensure the funds flow out as best as possible and on top of that there are tax deductions for pension payments that go out to those children.”
He also noted the addition of more members to a fund did not mean they all had to become directors of a corporate trustee.
“It is optional and if the members are using a power of attorney, they can provide the ability to have a replacement director or trustee looking after their interests,” he said.
“So with a six-member fund it can have one or two directors, which is easier for administration, with consideration as to who should not be a director, particularly if they are too old or infirm, but directors are optional and that remains in the hands of the members.”