What happens when you can’t manage your SMSF?

More than 1.1 million Australians manage their superannuation via a self-managed superannuation fund (SMSF) structure. Many are motivated by the desire to have control over their own money, the potentially lower costs, or the option to make investments that aren’t available to members of public offer funds. Whatever the reason, if you are a trustee of a SMSF, have you stopped to ask yourself, “Who will look after my super if I can’t?”

Members of SMSFs tend to be older than the population as a whole. While we are living longer and healthier lives, many people will reach the stage where they are no longer able to properly look after their financial affairs. Due to the high regulatory requirements controlling SMSFs, the penalties for not managing your fund correctly may be substantial. So what are the options?

Rely on the other trustees for help
If the fund has more than one member, is the other trustee(s), or directors of a corporate trustee, able to manage the fund? While it’s common for a SMSF to have two members, usually spouses, it is often the case that only one knows what’s going on.  While it is ok for one trustee to do most or all of the work in looking after your fund, it must be remembered that each trustee is equally responsible for the fund in the eyes of the law.

With single member funds, it is possible to appoint a second, non-member trustee to help with decision making, but it is important that they have the skills to run the fund if necessary.

Appoint an attorney
Whatever your circumstances, you should provide an enduring power of attorney to a trusted and informed person. This allows them to step in and manage your affairs if you can’t. However, if your attorney is to help manage your SMSF, he or she needs to be both willing and able to do so.  If you are unable to manage your own affairs and your attorney is acting on your behalf, they will also need to be appointed as a trustee of the fund, or a director of the corporate trustee, unless they are already a trustee or a director in their own right.

Switch to a small APRA fund (SAF)
A SAF is similar to a SMSF but with an external, professional trustee. While SAFs offer most of the benefits of SMSFs, trustee fees can increase the costs of running such a fund.

Rollover to a managed superannuation fund
While a retail or industry superannuation fund will restrict your investment options, for example not allowing you to hold direct property within your super, all of the administration and many of the investment decisions will be made by professional managers. Overall fees may be higher with these funds, but they take the weight of fund management off your shoulders.

Use an adviser
A qualified financial adviser with the appropriate systems in place can help you manage your SMSF. In the event that you lose the ability to make decisions about your fund, an adviser can also assist other trustees or your appointed attorney. Depending on the size of the fund, the overall cost of using an adviser can be less than the total fees charged by managed super funds, while ultimate responsibility for fund compliance remains with the trustees.

It can be difficult to decide when the time is right to hand over the reins of your super to someone else. It’s important to make plans, discuss them with your fellow trustees or your attorney, and to seek professional advice as to the best way to ensure your super will be well managed if you can no longer ‘do it yourself’.  

McConachie Stedman Financial Planning is an Authorised Representative of Wealth Management Matters Pty Ltd ABN 34 612 767 807 | AFSL 491619