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Self-managed superannuation funds can be tricky especially for people who have little experience with this type of fund. However, if you are planning on managing your own SMSF and your family members will be involved, there are some things that you need to know. A self-managed superannuation fund can have no more than four members to remain ‘compliant’ and it is not altogether uncommon for an SMSF to comprise a mum, a dad and two adult children. Superannuation legislation however requires that each member be a trustee of the fund. When introducing this requirement, the government stated: “The requirement that all members be trustees will ensure that each member is fully involved and has the opportunity to participate equally in the decision-making processes of the fund.” Uneven Balance of Power Equal participation by trustees is not given for every SMSF, though. It may be anecdotally evidenced, but is often quoted as widely accepted fact that a four-member SMSF will be more likely to have one trustee who tends to dominate decision making. It is also possible for some SMSFs to use a construct of the trust deed to control the participation trustees. This can be in the form of a clause inserted into the deed that allocates trustee votes based on member balances. However, the trouble with this setup is that it works against the SMSF legislation’s intention, and theoretically renders a section of the superannuation law toothless (that every member must also be a trustee) because a simple clause can remove its application, negating a trustee’s powers and yet leaving them still liable for the duties and responsibilities of still being a trustee. The Tax Office has noted that these types of voting arrangements are in fact used, and that therefore, were it to state that it did not accept them, this would cause considerable problems in respect of existing deeds. Experts working in the DIY super industry have expressed doubts that such clauses would survive a court challenge. Not only is it accepted that laws were drafted with an intention to ensure unanimous decision making, but it is also written into sections of the governing legislation. Equal voting rights causes many problems including creating an environment where parents could find themselves needing the approval and consent of their children concerning decisions about their own retirement savings. Competing Priorities The conventional wisdom that surrounds the topic of investment decisions dictates that the competing priorities of parents and children should be contingent on risk profile and proximity to retirement. Even a generous view of the SMSF’s fulfillment of the ‘sole purpose test’ (to take the best actions necessary to save for members’ retirement) will find it difficult to reconcile the two approaches to risk dictated by the makeup of trustees. While there are cases that can be seen as exceptions to the problems set forth by the rule, it is evident that parent SMSF trustees need to be fully aware of the risks as well as the benefits of having child-member trustees. For more information about Health Medical Insurance and Medical Insurance Australia please visit our website http://www.taxforhealthprofessionals.com.au/
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