Pros and cons of inviting a family member into my smsf

@Westminster mentioned this option in a thread ages ago but I didn't think I'd be in a position to use it. My husband was abducted by aliens recently and they replaced him with some guy who's interested in investing . At the moment I've got an smsf in my name, just in process of buying a property in there. He has an industry super fund and reaches preservation age 10 years or so ahead of me. I don't know if he'd really want to roll his fund into my smsf. Not sure how expensive that would be either. Is 'inviting' a family member the same as them rolling their super into the smsf?

Also, how does it work in terms of each party accessing the super if one party reaches preservation age earlier than the other? Just interested in hearing about the ways that this may be beneficial to us, and any downsides.

 

This is financial advice, mainly, so you may not get many responses.

On the legal side just consider what could happend at death of you or them - control of hte fund and/or control of the deceased member death benefits.

 

I think this was a more popular move with the previous Transition To Retirement loophole which has now been closed.

 

Thanks Terry.

 

Ah, okay. Might have missed the boat again..

 

Omg! Congrats! My partner isn't either (He's freaked out with a $300k debt on a home worth roughly 2mill). But I suggested we put a tiny "shed" in the backyard for extra rent. I showed him the website of Smart Looking Sheds (1/20 Walker St South Windsor) and he was interested enough to come with me and have a look. We went and he wasn't rude to the guy running the business, and actually came across as interested. (Helps that the guy really knows his stuff, and he tried to look up the council rules for our address). Makes my partner feel comfortable that this man is an expert with experience - he's even on the heritage board/advises on heritage and has 30+ years experience in building. Amazing.

 

That's brilliant, how exciting. You and I have had a hard slog

 

This is definitely a matter to seek financial advice on. You may also misunderstand SMSFs when you say "in my name". The reality is the SMSF is a distinct entity and no SMSF assets should be held in your name. They are held in the name of the trustee. Hope you are not the sole trustee (its a breach of superannuation law) !! A SMSF can have more than one MEMBER which I believe is what you are considering. This is actually a normal feature of any superannuation fund even a industry fund.

Pooling funds can be highly effective however it does come with a number of issues and concerns. Prior to rolling funds in the person must apply and be admitted by the Trustee and changes made to ASIC / ATO records. Then both of you will jointly manage the fund and share in decisions. The deed will prescribe the process. Then there will be formalities such as updating the fund investment strategy and review of member insurances. Having members at different points of the accumulation cycle can open up some strategies. One of the greater concerns however is a geared SMSF that is poorly setup can end up burning member contributions and this could harm his balance (and yours). I hope that isnt the case.

Its a sad state of affairs when a SMSF is setup with one member and you ask such a question. Any adviser worth their salt should have explained all of this and likely given financial advice anyway. Who set this up ? It actually likely wont cost any more to have hubby as a member v's one member. SMSF fees are generally fixed - They may vary with transaction volume and issues but not y a great amount in most instances. Whether a fund has one or four members may not greatly influence cost. Of course this must be weighed up v's insurance costs and the fees paid to the existing fund.

PS : He wont reach preservation age 10 yr before you !! You have that all wrong.

 

Thanks Paul. I used some terms incorrectly and can see I'll have to be very accurate when posting in this section! I wasn't given financial advice when setting up the smsf. It happened to work in a way that was purely around purchasing a property in the fund, rightly or wrongly. It wasn't very long ago and I didn't seek financial advice, just because I had lots of other things happening at the same time. An issue came along (for the sake of everyone's learning) when I came to apply for finance for the property and the lender wanted a letter of financial advice. This had to be done in a hurry because we'd identified a suitable property. Hence the process was extremely rushed and only covered the basics. So, I'm pretty much non the wiser at the moment but will go back and seek financial advice over the next couple of weeks.

 

Sounds like poor financial advice IMO and there is no such thing as "the basics" if its done correctly. My issue is not your decision but the advice given in haste. I think SMSFs can be a great tool but done badly you could be trouble too. The badly part is that there is a substantial body of knowledge that has been skipped in the haste to do something. Getting a financial advice sign off afterwards is not different to that TV show - Love at first sight. I often see many DIY smsf acquisitions that seem OK that arent and either get knocked back during final approval or they get approved and suck the cash from the fund for a number of years. One of the biggest issues is that a SMSF borrowing is nothing like that of a purchase by an individual taxpayer. The whole concept of negative gearing doesnt fly for a SMSF in most cases.

One strategy to resolve any problems like this may be to add a spouse as a member and roll their funds in. But only after considering a range of issues. If they jump in they could lose benefits too. And in some cases I have seen a inability to roll-in when the trustees have planned around it too. eg One member is a employee of a state or Commonwealth Govt agency.