“Is there a right time to move a client in or out of an SMSF?” The question, which now has the attention of our new Federal Government, continues to spark debate and divide opinions.
In the past, the rule of thumb was that $200,000 – $250,000 was an appropriate balance with which to start an SMSF. However, with the cost of administration falling and the growing prevalence of gearing strategies, some would suggest a significantly lower balance may be an acceptable starting point.
The reality is the actual amount is probably irrelevant – what is important is that before starting an SMSF, there needs to be a reasonable level of assets accumulated, a good understanding of the ongoing trustee requirements and the ability to make substantial contributions over time. This is especially true if more sophisticated gearing or investment strategies are being used, which require a higher level of free cash flow.
Once established, an SMSF will probably remain an appropriate structure for many years and will take a member through various life stages, including accumulation phase, transition to retirement and retirement. This is where it gets interesting and perhaps controversial, as a number of clients and indeed advisers, can fail to understand if the SMSF has reached its ‘use by date’.
The decision, or requirement, to move a member out of an SMSF may be due to a number of factors including:
- the member’s age,
- diminishing mental capacity,
- a switch to more income based strategies,
- or simply because they no longer want the burden of trustee obligations and responsibilities.
At this point, provided the investments allow the transition, the member may be better off rolling into a retail super fund which will provide virtually all of the required investment options as well as pension and estate planning features of an SMSF without the administrative burden, complexity or trustee responsibilities that many find so onerous.
If you are not yet convinced and need more reasons to consider or justify this strategy, one of the most important considerations is anti-detriment. This is the extra benefit payable only on death to eligible beneficiaries. While SMSFs find it difficult, if not impossible, to pay the anti-detriment payment, most retail funds can easily make the payment as they can immediately use the tax deduction generated by making the anti-detriment payment.
Matthew Heine joined netwealth in July 2001. He has been instrumental in the development of the distribution, branding and marketing of netwealth since that time. Matthew’s role and experience in the sales and marketing field brings a “hands on” understanding of the industry and client base to the Board. Matthew had previously worked at Heine Management Limited. Matt is a member of netwealth’s Investment Committees.
