We all know that there are numerous advantages to having a self-managed super fund, such as greater control and the flexibility to tailor investment decisions. Increasingly though, there is a trend to promote self-managed super funds as a superannuation solution to meet the needs of an entire family. Whilst there are some benefits to using a SMSF for the whole family, it seems that generally, the downside of doing so outweighs the benefits.
A recent article by Alexandra Cain in the Financial Review looks into the potential benefits as well as downsides to shed further light on this trend.
Cain highlights that whilst parents are able to represent their children (who are under 18) who are in the fund, it is important to act in the best interest of all members and that they cannot simply take into account their own needs. This requirement on the parent, would in turn mean that one of the main benefits of a SMSF (to deliver a personal superannuation solution), could in fact be negated by having to act in the best interest of their child when making investment decisions primarily due to differing risk profiles and investment horizons.
Ray Jaramis of Treysta Wealth Management notes that this does not always need to be the case, as members are able to have separate investments through segregating the fund’s assets. However whilst this is a viable solution, the additional work required to manage this may lead to higher administration costs. Also, the compliance required to maintain such a strategy can become quite a burden on members. Jaramis also highlights this “tail of paperwork and compliance”, illustrating that it can become increasingly difficult the more members that are added to a fund given that all trustees need to sign documents such as the fund’s annual return.
Ultimately, whether or not children are included in your SMSF should be a decision that you make after seeking proper financial advice. This will ensure you have thoroughly examined your specific situation by weighing up the costs and benefits associated with your personal circumstances to ensure that an SMSF with your children in it is the best superannuation solution for all involved.