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Is a 6-member SMSF for you?

pink piggy banks inside piggy bank 6 member smsf

SMSFs are expected to be able to accommodate up to six members after 1 July 2019, but that doesn’t mean all SMSFs should, a specialist has said.

Minister for Revenue and Financial Services Kelly O’Dwyer announced the proposal to allow SMSFs to hold up to six, rather than four, individuals in May.

According to Omniwealth head of SMSF Stephen Hogg, this opportunity will be good news to some but should be avoided by others.

Should I?

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Noting that most SMSFs have only one or two members, Mr Hogg said most three or four-member SMSFs have been established to bring other family members into the fold, or to pool funds to purchase a larger asset.

He said SMSFs like this may find the proposed member-limit appealing as even more family members will be able to gain access to the SMSF.

At the same time, reduced concessional and non-concessional contribution caps will also mean the ability to pool the money of six, rather than four, members will be an attractive proposition.

“An overarching advantage to an SMSF with multiple members is the lowering of the expenses paid by each fund member,” Mr Hogg continued.

“Certain expenses in an SMSF are fixed regardless of the number of members such as the requirement for annual audited accounts.

“By pooling superannuation monies in one SMSF members can avoid the costs of running separate SMSFs.”

Shouldn’t I?

On the other hand, SMSFs with six members could encounter difficulties when it comes to agreeing on investment decisions and who has access to the investments.

“Further estate planning considerations upon the death of a member will need to be well covered to avoid any disputes on the death of one member that may affect the rest of the fund’s assets,” Mr Hogg said.

According to Cooper Partners head of SMSF and succession Jemma Sanderson, the fixed fees saved may not be enough to offset the administrative cost of running six separate investment portfolios for the one fund.

“That can become administratively quite cumbersome to manage, and so the cost of running that versus having two separate funds is six of one and half a dozen of the other,” Ms Sanderson told Nest Egg’s sister site SMSF Adviser.

She added that SMSFs should strongly consider appointing a corporate trustee if they decide to have six members.

“Having six individual trustees is a nightmare. Super funds shouldn’t have individual trustees in my view. They need to have a corporate trustee and that just makes things so much easier from an ongoing administration perspective,” Ms Sanderson said.

Is a 6-member SMSF for you?
pink piggy banks inside piggy bank 6 member smsf
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