Wind-up strategies need to be considered at establishment: expert
Advisers should start talking to their clients about the winding up a fund from the time of establishment, says a leading technical specialist.
Anthony Cullen, senior SMSF educator with Accurium, said in a recent webinar that traditionally discussions about winding up an SMSF usually only happened when members were leading up to retirement.
“There are many stages to running a fund from the establishment through accumulation to retirement phase and death can trigger certain events like winding up,” Mr Cullen said.
“What we're seeing now is that setting up a fund can happen at any stage through accumulation through transitioning to retirement through retirement, but when do we start considering winding up?”
He said that ASIC suggests that as part of the process of establishing an SMSF, advisers should be educating clients about the lifecycle of a fund, including winding up.
“In the early days, it was very much ‘let's worry about setting up the fund and get the investment set up and we'll worry about the future in the future’,” he said.
“But the view now is that you need to raise the future and exit strategies with your clients at the beginning to make them aware that things don’t always go to plan.”
Mr Cullen said things such as death and separation, particularly concerning assets and what the fund might owe on these, need to be considered. He added other things that could cause issues in a fund under these circumstances could involve a fund with lumpy assets like a business real property that is being leased to a related party.
“There's a couple of things that you want to think about right from the word go, not just at the end of the lifecycle of the superannuation,” he said.
“Have you thought about what you're going to do if all of a sudden you need to make a benefit payment out of the fund? Does that also put the business at risk because you're going to have to sell that property or you're going to have to try and find some way to transfer the property out of the fund?”
He said ASIC also recommends that advisers should have clients consider the trustee structure of the fund as part of that exit strategy and whether the fund is established with corporate trustees, or individual trustees which will have an impact on how the fund is operated going forward.
“Historically, we've seen that individual trustees were popular because it was a cheaper option in getting the fund started, but over the lifecycle of the fund if there are changes in trustees or members the cost associated with making those changes and the work involved with individual trustees is generally more involved,” he said.
