My parents have a SMSF – what do I need to know?
Perhaps you don’t have an Self-Mangaged Super Fund (SMSF), but your parents do. As they age, you might play a more significant role in managing it. Certainly, if they die and you’re the executor, you will need to know what to do with their super.
SMSFs are a commonly used structure that individuals use to manage their superannuation. An SMSF is a trust, which is a legal structure used to manage assets.
You will need to understand who is in charge and make sure it’s the right people. Your parents will not only be members of the fund, but they will also be the trustees of the fund.
Often people set up a company that is the trustee and they are the directors of the company. A corporate trustee is the preferred trustee structure especially as individuals age and membership or control of the fund needs to be updated. If your parents don’t have this yet and are aging, now might be the time to make the switch. Some of the benefits of a corporate trustee are:
Better protection and administratively simpler to make changes when something changes – i.e. death of a member, change in fund members
Control for single member funds – corporate trustee is the only option for a single member fund
Easier to keep personal and super fund assets separate
Better protection of personal assets and if something goes wrong
If your parents are still fine to make all the decisions about their fund, there’s no reason they can’t remain the trustees (directors of the trustee company) with you providing occasional help with some of the logistics in the background.
If things are getting close to the point where you need to take over some of the decision making, it might be time to formally replace them as trustees of their SMSF. There are a couple of ways you could help here:
if you’re happy to put some of your own super in their SMSF (it can even be a token amount), you could become a member and trustee alongside them. That means the three of you share control and responsibility for the SMSF. Your parents will have the same responsibility – as long as they are trustees too, they can’t just leave the decision making up to you, or
you can actually become the trustee (director) in their place.
You can become a trustee (director) in their place as long as you have an enduring power of attorney for whoever you’re replacing.
A few things to bear in mind here:
it doesn’t happen automatically just because you have this enduring power of attorney. For example, you might have already used your power of attorney to sign other legal documents on their behalf. It doesn’t work that way when it comes to being the director of a company or trustee of a trust. There is legal paperwork to do so that you actually formally become a director of the company or trustee of the trust.
And once you’re involved, what do you actually “do”?
If your parents have historically managed all the fund’s investments, now might be the time to consult a financial adviser.
If they have pensions in place, they’re required to take a minimum amount out of the fund each year. Most SMSF members arrange a regular payment for the amount they need and then check near the end of the financial year to make sure enough has been paid. The SMSF accountant will be able to advise of the required minimum pension that must be taken.
You’ll need to get a value of all the fund’s assets every 30 June. This is quite simple for cash and listed assets, but for direct property you will need to engage the services of a property valuer.
On the whole, managing your parents’ SMSF is a lot like managing their personal finances but with some extra compliance. Their SMSF accountant and (if they have one) financial adviser will be invaluable sources of help when the time comes.
If you have an SMSF and are thinking about future management or simply want expert support now, we’re here to help you and your family navigate the complexities, please don’t hesitate to contact us to organise a meeting.