Allowing sufficient time for the SMSF wind-up process to take place is generally the biggest problem advisers and trustees encounter when closing a fund, a technical specialist has said.
“[It’s a problem] because people get this picture in their mind of wanting to wind up a fund and they want to wind it up now, but they haven’t actually taken any action to start the wind-up process,” SuperGuardian education manager Tim Miller explained during a recent practitioner webinar.
In particular, Miller noted very few trustees take into account the type of assets owned by the SMSF and how the characteristics of these assets will affect the process.
“Often they’ll have illiquid assets where it will take time to redeem those assets and put the proceeds into [the SMSF] to then start the wind-up process,” he said.
According to Miller, the issue takes on even greater significance when individuals are looking to close the SMSF before the nearest financial year end.
To this end, he pointed out often the process will not be able to be completed until potentially the following 30 June.
“We have to make sure that the trustees understand that if they don’t follow a due process of selling down the assets in a timely manner and then [executing the rollovers] and benefit payments [before] the date of the wind-up, then the fund [can potentially] be moved into another financial year,” he said.
“It means [the trustees will also] have one more year of lodgement and other [compliance procedures] to be mindful of.”
Unfortunately, the situation may lead to advisers having to deal with increasingly frustrated clients, but he acknowledged it emphasised the importance of effective communication.
“Ultimately it all comes back to that education piece, the communication piece, [ensuring trustees] know this process takes time and, in some instances, that time could extend by a number of months and could extend into a new financial year or a couple of financial years if they’ve got assets [that are] difficult to liquidate,” he advised.