Most self-managed superannuation funds (SMSFs) have either one member or two from the same generation (e.g. husband and wife). Increasing the number of active members and involving multiple generations could be a great strategy. Here are some pertinent points:
- The current maximum number of members for an SMSF is 4. However, this is expected to increase to 6 later in 2019. This change would significantly improve the appeal of a Family SMSF.
- Bringing in younger generations would allow experienced older folk to share and pass on their knowledge of managing money – or perhaps it’s the younger ones transferring their knowledge upwards for everyone’s benefit. Certainly having capable younger fund members around could help older ones cope as the years go by.
- Pooling superannuation monies from an expanded number of members could result in some worthwhile cost savings. Well worth crunching the numbers to reveal the facts.
- Pooling superannuation monies from a larger number of members could open up some additional investment opportunities. Physical property and passive ownership of a private business are potential examples. Tailoring investment strategies to suit specific family circumstances and needs could be a terrific solution.
- Investments in the Family SMSF could be owned proportionately by each member (e.g. Member 1 owns 40% of all investments, Member 2 owns 30%, Member 3 owns 20% and Member 4 owns 10%), or individual investments could be apportioned to specific members. Perhaps older, retired Family SMSF members would prefer a more income-oriented portfolio while younger members are more attracted by growth opportunities (perhaps in some of the newer “tech” sectors not well represented in the Australian share market). Flexibility to suit all needs could be built into the design and operation of the Family SMSF.
- Trustee decisions could be on a simple majority voting basis, or members with larger balances in the Family SMSF could protect their positions by giving each trustee votes in line with the value of their account (e.g. Member 1 has 40 votes, Member 2 has 30, Member 3 has 20 and Member 4 has 10). This is an important part of the design and operation of the Family SMSF.
- An existing SMSF’s trust deed may require no change or only some minor amendments to accommodate more members. By the way, each member of a SMSF must be a trustee of the fund (either as an individual or as director of a corporate trustee).
- A SMSF with both older “pension phase” and younger “accumulation phase” members may be well positioned to avoid or at least limit the negative impact on older members of changes to the franking credit system seemingly high on Labor’s political agenda.
A Family SMSF could be a great solution for you and your family. Give us a call (03 9813 0133) to have a preliminary chat. You never know what opportunities and benefits might arise. The author, Chris Heyworth, is an Authorised Representative CIP Licensing Limited – AFSL No. 471728 providing financial planning services as The Investment Collective.