Things you should know before setting up an SMSF with Multiple Members
You can have up to 6 members
From 17 June 2021, the government increased the maximum number of members you can have in your SMSF from 4 to 6
Advantages
More money for investment opportunities
Larger families are catered for
Can allow for transition of larger assets over time using withdrawal and re-contribution strategies (estate planning)
Potentially less admin costs in one SMSF than 6 individual retail funds or multiple SMSF's
Greater potential to retain Australian status if members travel overseas
Disadvantages
Every member has equal rights to decisions, regardless of their share
Getting 6 people to agree on existing and ongoing investment decisions can be challenging, especially if they are in different life stages ie 40 and working versus 65 and retired drawing a pension
If a member wants to leave, has a marriage breakdown, suffers from a TPD event or death, there needs to be a way to quickly liquidate assets to payout their share to their beneficiaries or estate
It's difficult to exit a member on a relationship breakdown if there's little liquidity in assets
Added difficulties in administration with so many members
Overall control of the fund including appointing and removing trustees
The investment strategy is likely to be more complex
Complexity in each member's estate planning
Additional key points
As with all SMSF's, Corporate Trustee's are preferred, but even more so with a fund of this size. All assets are held in the name of 'Corporate Trustee ATF SMSF'.
The advantages of this are:
Easier to remove or add members
Assets don't have to be renamed each time
Recording & registering assets can be simpler and quicker
Potential penalties for breach of duties are per trustee - with a corporate trustee, this is only one trustee
Continues on in the event of a members death or incapacity
The disadvantages are:
More expensive on set-up - you have to purchase the company
Each member has to obtain a Directors ID at the start
Anything else?
If you're considering setting up an SMSF, or even just increasing your member size make sure you have:
Checked your deed to make sure it allows for this
Talked to your financial planner to see if it's a financially viable option
Talked to your accountant so you fully understand your new compliance requirements
Plan your SMSF with the end in mind. If you're setting up a 6-member fund, make sure you've thought out:
What if we want different investments?
What if someone gets sick and has to be paid out?
What happens if someone dies? Do they have a Non-Lapsing Binding Death nomination in place? How do we pay them out? With insurance?
What happens if someone has a marriage breakdown & has to be paid out?
At what point should the whole thing be dissolved?
Are we just doing this for one asset & everything else is to be in other funds?
More information
Referrals
To discuss any of the above further, you can ring me on 4021 2801.
''Being aware of the issues allows you to plan and prepare around them" - Nyssa Gower