Six-member funds an ‘administrative nightmare’, SMSFs warned
In light of the government’s proposal to increase the SMSF member limit to six, one technical expert has warned this could lead to administrative headaches and is unlikely to provide significant estate planning benefits given the transfer balance cap.
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.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.