What options do I have when I am too old to run my Self Managed Super Fund?

Q.  My wife and I have jointly run our two-member SMSF since 1997. We are both in our 70s. Neither of us would like to continue to run the SMSF on our own in the probable event of one of us predeceasing the other. The fund is about $1.4 million, split about 60/40.

What options are available to us? What are the pros and cons of those various options, given that we would like to continue to have a direct say (say semi-annually) in the allocation of our assets and the drawdown of those assets?

I am sure that many mum and dad SMSFs will be asking these questions in the future, as for many couples, the incentive to manage the SMSF well will probably reduce when one partner is no longer there to help.

A. There has been so much attention focused on establishing Self-Managed Super Funds (SMSF) and so little attention given to your issue. Your question is the great problem for SMSF investors that will become more and more prevalent in the next decade and beyond.

Before anyone establishes an SMSF, it is important to consider the long term planning needs to avoid costly mistakes into the future.  Whilst you can outsource the administration and compliance of the SMSF, you and your wife will always bear ultimate responsibility for the fund as Trustees.

There are 3 options you have.  You can retain the SMSF, and appoint additional Trustees to the fund who share Trustee responsibility as you get older.  Typically this would occur with adult children joining your fund.  An SMSF can have up to 4 Trustees and they must be admitted as members of the fund.  The positive is that you can continue the fund, the negative is you still are responsible for the fund as Trustees.  You are also adding complexity as you will need to accommodate the varied needs of the other Trustees as members of the fund.

You can appoint individuals to take on Trustee Responsibility under an Enduring Power of Attorney or Guardianship in the event you have diminished capacity to manage your affairs.  Note if you don’t do this, the funds must be rolled out of an SMSF anyway.

You could close the SMSF and rollover your fund to a Public Offer Fund, this is the simplest option. All ongoing administration and compliance of the fund reverts to a 3rd Party Trustee.

Ongoing management costs of a Public Offer fund will vary depending on what features you are looking for in a fund so shop around.  The gap in cost between a Public Offer fund and an SMSF narrows as the value of your Super diminishes and you outsource more of the administration and management of your SMSF.

Most Public Offer funds will have a range of investment options available for you to choose. If your SMSF invests in Direct Shares, Term Deposits and Managed Funds, all of these can be accessed via a range of Public Offer funds.

The third option is you can convert the fund into a Small APRA Fund (SAF).  A SAF offers all the flexibility of a SMSF but without the Trustee Responsibilities.  A SAF has an appointed independent Trustee who manages the Trustee responsibilities on an individual fund basis and on an agreed fee basis. The key negative is you have additional Trustee costs that you don’t face now.

Most people establish a SMSF wanting to take control of investment selection and in the belief it will be cheaper to run.  As your capacity or interest in running your fund diminishes it makes sense to weigh up the cost and benefit of self-management.  Ultimately your decision will be based upon what types of investments you want to own in your Super fund, the ongoing costs to manage and how much future involvement you want in the decision making process.  The value of “Peace of Mind” cannot be overstated.

 

Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.