Parents who have added their children to the membership of their SMSF still represent a small percentage of funds and despite the family dynamics of these arrangements, there are good reasons to consider adding them, a sector specialist has stated.
Strategy Hub co-founder Tracey Besters pointed out there were usually two core reasons behind most trustees’ decisions to add their adult children to their SMSF.
“There are two parts of intergenerational SMSFs. There’s the passing the baton part, which is where the parent in the fund is going to pass the baton on to their kids [and leave the fund], or the concept of ‘all for one and one for all’,” Besters said during a recent presentation hosted by The Auditors Institute.
“This means everyone is pooling their funds together to become part of the SMSF and have multiple generations all investing in a particular property or investment.
“I’m not a huge fan of having kids in the same fund as parents as there are a lot of issues that can come up, but when is the right time to have kids joining the fund with their parents?
“If you have got business premises, that is probably one of the considerations where you have the next generation coming to the SMSF and it’s really crucial that business premises remains there because we want to run the business from it.
“However, if we have got a liquidity issue and can’t fund the pension payments or have other expenses coming out of the super fund, then it may be the right time to bring in the next generation, roll over their balances and boost the cash availability in the SMSF.
“Illiquid assets would also start the same sort of conversation about bringing more funds, cash, contributions or rollovers into the SMSF to be able to deal with these chunky assets.
“Illness or capacity [may be another reason to add members] where a parent is elderly and needs some support in running the SMSF rather than using an enduring power of attorney.
“If there is tons of cash or assets in the millions or tens of millions of dollars, that may also be the right time to become an intergenerational fund.”
Despite these drivers, she highlighted that while SMSFs with up to six members were possible since 1 July 2021, the take-up had been limited and only around 44,500 funds, or about 7 per cent of all SMSFs, had more than two members, with only 646 funds reporting six members.
“I am surprised by this because of the big media focus around six-member funds, but we’re just not seeing that much of an uptake. Why is that? Because there’s a whole lot of complexities around having intergenerational SMSFs,” she added.
“Clearly we’re not seeing the uptake of intergenerational SMSFs as much as we thought, but that may change with the great wealth transfer so we might see a whole lot of more of the next generation coming through.”
