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Building Generational Wealth With SMSF Strategies

As someone truly passionate about innovative financial planning strategies, I'm thrilled to delve into the topic of multigenerational self-managed super funds (SMSFs). With the recent increase in the maximum number of SMSF members from four to six, the idea of multigenerational SMSFs becomes even more intriguing, albeit still a niche trend.

The Australian Treasury Laws Amendment Act 2020, enacted on 17 June 2021, opened the door to six-member SMSFs. Though it may be daunting at first, and a big step to take managing the retirement savings for your entire family inside of a single fund. Meg Heffron, managing director of Heffron SMSF Solutions, suggests this arrangement can work well, particularly when commercial property or family businesses are involved.

Lets explore both the upsides and downsides of these Multigenerational SMSF's 

The Upsides

  1. Cost efficiency: The greater member count can lead to more significant cost efficiencies. John Maroney, SMSF Association CEO, stresses this setup can help younger members overcome prohibitive setup costs.

  2. Bigger investments: Combining resources allows for sizeable investments, such as commercial properties, making it an attractive option for family-run businesses.

  3. Cash flow management: Contributions from younger members can fund pension payments, facilitating an internal wealth transfer without the need for asset liquidation and the associated tax implications.

  4. Estate planning: Assets acquired through younger members' contributions may pay out death benefits, potentially keeping property within the fund across generations.

  5. Knowledge transfer: Managing a super together can provide adult children a hands-on financial education while allowing them to contribute their expertise.

The Challenges

  1. Conflicting interests: Different generations might have diverging priorities based on their life stages. Trying to manage these distinct needs within a single fund could jeopardize the very purpose of the combined fund.

  2. Administration complexity: Membership changes due to life events can complicate the management and could lead to unintended asset sales.

  3. Control issues: A single difficult member can cause friction within the family, and control dynamics may shift drastically with the death of a parent.

  4. Varying state laws: State-based trust laws could present challenges for SMSFs with individual trustees.

  5. Overseas movement: Non-compliance risk arises if members move overseas. Compliance necessitates that at least half the members and at least 50% of active member balances remain in Australia.

  6. Estate planning concerns: Contribution caps might complicate reinvestment of lump sum death benefits into the super. Power imbalances among siblings may also arise when some are members and others are not.

Despite the myths, members maintain control over their account balance investments in an SMSF,  and with careful planning, many of the challenges faces when arranging a multigenerational SMSF can be addressed. While multigenerational SMSFs might remain an exception rather than the norm, for some families, the benefits could be profoundly rewarding. Consider whether this is right for your family and if everyone is onboard we would love to be involved with helping you create generational wealth through your SMSF.