Bringing children or other younger savers into an existing SMSF can increase purchasing power and boost cash flow, but beware the added complexity.
Bridgett Fuller set up a self-managed superannuation for herself and her husband about a decade ago. More recently, the couple’s 20-year-old daughter, who is studying at university and works part-time, joined the fund. Now they discuss all investment decisions as a family.
The then Coalition government said lifting the limit to six was about choice and flexibility; it would give large families the option to collectively manage their retirement savings without paying multiple sets of fees.The policy was possibly more about giving SMSFs a way to circumvent Labor’s unsuccessful plans to deny cash refunds for franking credits.
Similarly, if a member dies a death benefit must be paid. If there are not enough liquid assets within the fund to pay the benefit, something may need to be sold. Adding an extra person and rolling their balance into the fund might cover the benefit payment without forcing a sale.Nevertheless, Viola usually warns clients against multi-generational SMSFs because of the complexity involved. In fact, he actively discourages it for wealthy clients with between $3 million and $50 million.
Murphy’s husband, 52, who runs his own business, sister , and brother-in-law are also members of the fund. “Whilst a four-, five- or six-member SMSF might initially appear attractive, much of the gloss wears off once the potential long-term issues are taken into account. “If you’re still 20 years away from retirement, you’ll probably still have the most aggressive super investment option. But parents who are nearly retired or already retired don’t need anything nearly as aggressive,” he says.
Dolan, who works in healthcare, says the fund owns property, shares and cash. “We’ve done pretty well over the years,” she says. “Two of the asset classes have grown, while the cash component doesn’t have as much of a windfall gain as the other asset classes.Dolan says being in a SMSF requires constant communication and the ability to take ownership and an active interest in the investments being made.
A binding death benefit nomination is a legally binding written direction from a fund member to their trustee, detailing how they want their death benefits to be distribution. But BDBNs can, and are, challenged.
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