Self Managed Super Funds most commonly operate as a joint fund.
Generally two adults who are spouses will act as trustees and be members of the SMSF.
This reflects not only that many couples organise their retirement planning together but that SMSFs rules require at least two individuals (but no more than four) to act as trustees.
When they consider what would happen after one of them dies, couples often expect that adding an adult child as co-trustee will be the best way to provide support and meet the legal requirements. However, a range of practical and relationship issues can arise, creating an unintended consequence of increased administration and paperwork – generally the last thing trustees want!
Consider the many SMSF compliance and tax documents all trustees are required to sign. This can be difficult to coordinate when both trustees live under the same roof, let alone across different cities or states.
If the adult child being considered for the role of trustee also has a demanding career, busy family life or little interest in paperwork, the arrangement can become unsustainable.
On top of this, family relationships can be stretched. Although up to three adult children can legally be added as trustees alongside the surviving parent, logistically it makes sense to add only one. Making this selection can cause tension amongst siblings. Further the child chosen as co-trustee may also have their own concerns around consequences if an investment fails or a compliance problem occurs on their watch.
Consider also an adult child with strong investment opinions, even with the best intentions, may steer the SMSF into investment risks beyond the comfort levels of the surviving parent.
A good solution may be to establish a corporate trustee. This involves setting up a company for the specific purpose of being the SMSF trustee. Don’t be daunted by the formality of the name – this structure provides a neat solution for SMSF succession planning by allowing a single member fund to operate, with the flexibility to accommodate up to four members in total. This makes it ideal for a couple to use as it will also cover the transition to one surviving spouse.
Adult children then don’t need to be appointed as trustee but they can provide support around investment decisions, paperwork or general retirement planning in an informal capacity. Any change to trustees involves costs and considerable paperwork.
Corporate trustees also have additional legal and ASIC fees. For that reason, it is ideal to establish the corporate trustee while both partners are alive to bring forward the paperwork to a time when it can be shared rather than leaving it to be dealt with by a grieving spouse.