Investment strategy apathy a sign to wind up

SMSF strategy capacity

SMSF trustees struggling with their investment strategy due to age may be best served with advice to wind up their fund.

SMSF advisers should give consideration to the capacity of SMSF members to engage with their fund’s investment strategy as they age and lose interest in managing the fund, a technical expert has advised.

BT technical services technical consultant Tim Howard said while capacity issues are usually related to the mental ability to run a fund, older SMSF trustees may want to exit their fund as they are no longer interested in dealing with the complexities involved.

“This is consistent with what I see in regards to older trustees and I also see the better advisers starting to revisit the benefits and the needs of an SMSF as clients do start to age,” Howard said today during a webinar.

“While we can get enduring powers of attorney (EPOA) put in place and a person who has an EPOA for the member can step in as trustee for that member, where you have people lose capacity before they get that legal mechanism in place, or they lose capacity very rapidly without expecting it, it’s going to lead to a drawn out and difficult process.

“This is a common thing, and capacity concerns will be a big issue and lead to other questions around who has been given the power of attorney and who will run the fund on behalf of someone who’s lost capacity and if they are a beneficiary, is there are a chance for conflict.

“So, it is strategically worth thinking about where the end of the road might be and where the clients are no longer getting the benefit of the agility or uniqueness of their investments and its strategy.

“Looking at best interest duties, advisers have got to think what is in their client’s best interest and that might be to wind down the fund.

“If the clients can start drawing pensions at age 80 and they can start winding down the fund and selling assets in a concessionally taxed environment, there are ways we can do this quite effectively for them.”

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