Speaking to SMSF Adviser, Miller Super Solutions founder Tim Miller said while the policy has received a lot of support from the perspective of it enabling larger families to have an SMSF together, there has been limited focus on some of the administrative issues.
“It becomes more of an administrative nightmare to extend membership. To me there is a good reason why most SMSFs have two or less members, and that’s because it makes for ease of investment decisions and ease of administration,” explained Mr Miller.
“To all of a sudden increase that option from four up to six, you’re spreading the decision making ability to a far broader group.”
Mr Miller said this could see funds basing votes on the size of member balances and other factors.
“So it over complicates things by extending the numbers and I’d be surprised if there was significant take-up,” he said.
“It’s fairly easy to have discord amongst family members. All you need is four members to dislike what the other two are doing, and then you’re going down the path of what that four are doing.”
He also noted from a SIS regulation perspective, only two members are required to sign off on the annual accounts.
“So you might have the financials sent out by the administrator and end up with four members or trustees not actually seeing the documents, and two other people just signing off on them and accepting that they’re correct. It’s something that could lead to disputes between trustees,” he said.
“Therefore, are there legitimately six trustees? Will everyone really pitch in and be involved in the trustee decisions?”
Given the changes around pensions and the transfer balance cap, there is now limited ability to retain money in the super system, so an increased member limit is unlikely to bring significant value from an estate planning perspective, he added.
“Money still has to come out once someone exceeds the transfer balance cap,” he said.
Mr Miller said he expects the proposal will further broaden the debate on whether it’s a good idea to have kids in an SMSF.
“I’ve already seen the commentary about reopening the conversation about the family superannuation fund and for every person who thinks that’s a good idea, there are plenty of people that don’t,” he said.
Congratulations to the government on initiating this change. We are married with 3 children and have to run 2 Smsf funds – with double the fees to accomodate all members. Really great initiative – well done.
I really don’t see what the issues are here
It may suite some people to have six members and it may not suite others
There is no downside if you don’t want six member it just provides additional choice
Well written Tim. Balanced and looking at all aspects of the SMSF industry as that’s who has to make this work.
It seems that Millers advice is based around administration and not in the best interest of the client.
Good article. There are very few funds with 3 or 4 members so the expansion to 6 seems pointless.
There maybe benefits when a fund holds large lumpy assets (eg BRP). The additional capital of extra members could prevent the forced disposal of such assets.
The idea of utilising a SMSF for intergenerational wealth transfer will no doubt be dragged out again. I thought it had died years ago & the ATO position on reserves certainly has killed off this old chestnut.
Having dealt with divorce in an SMSF where one party was hostile, a family fund where the child has fallen out with the parents, and not to mention the difficulty in getting things signed where members live in different towns/states/countries, I can only imagine it would be a nightmare with even more members.
Ask 9/10 SMSF’s with parents & kids what happens on death, and they will no doubt expect that the kids will just “inherit” what is inside the fund on their parents death, and it becomes their kids own super.
Ask 9/10 parents if they knew super is a marital asset, meaning if one of their kids in their SMSF is divorced or separates from a defacto, a clever lawyer will drag the SMSF into the proceedings, and may cause assets like real estate to be either valued to death or even sold.
Everyone in the SMSF industry knows kids in SMSFs are a risk for these and other reasons, and no one was lobbying for a change.
Whoever has a vested interest in this and got in the ear of a politician should be ashamed of themselves.