It seems inevitable that more SMSF trustees reaching older ages may consider whether or not to ask their adult children to join their fund to help with its administration and investments.
Perhaps one of the trustees of a husband-and-wife fund has become seriously ill. Or perhaps the most-active member has died, leaving the surviving spouse with sole responsibility for an SMSF.
Having an intergenerational SMSF holding the retirement savings of multiple generations of the same family may seem a solution to such challenges however there are plenty of possible pitfalls that should be considered.
Three years ago, superannuation consultancy and fund administrator Heffron SMSF Solutions released a detailed discussion paper on intergenerational funds, Multiple generations in one SMSF – a great idea or a disaster waiting to happen?
Its author Meg Heffron made the point that the very elderly did not often have self-managed funds at that stage but this was likely to change over the next 20 years with the popularity of SMSFs among recent retirees.
Given the ageing of a large proportion of Australia’s population – reflected in the large waves of baby boomers now entering retirement – her paper is clearly worth revisiting from time to time.
Although very old age may seem a long way off for the vast majority of SMSF members, financial planners typically urge their clients to plan well ahead for the future of their funds.
The discussion paper recognises that there may be circumstances when an intergenerational SMSF makes sense. However, SMSF trustees were urged to carefully consider the possible disadvantages along with the various options to bringing the retirement savings of parents and their children into the same fund.
"Particularly after one parent dies, it may make sense to cut down the administrative burden this entails by combining into one fund," Meg Heffron writes. The word "may" should be emphasised.
Some trustees may not know that adult children can become individual trustees or trustee directors (or corporate a trustee) of their parents’ fund without joining as members and having money in the fund. Another alternative is for the children to become members yet to hold just a nominal amount in the fund.
Other options include the children having no official involvement in their parents’ SMSF yet aiming to ensure that the fund has access to quality professional advice if required as their parents age.
The potential negatives of intergenerational SMSFs include concerns of parents about sharing control of their savings, the possibility that the marital relationship of a child may fail, and the parents and children having different objectives and tolerances to risk.
"Some families have good reasons for sharing investments," Heffron acknowledges, "for example, those in business together may well have a shared interest in buying the business premises. Others, however, may find they wish to head in completely different directions, which starts to undermine the usefulness of being in the same SMSF."
Perhaps the bottom-line is to realistically examine at what can go wrong (and right) with intergenerational SMSFs and to take professional advice given a family’s particular circumstances.
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Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment. |
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