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The advantages and disadvantages of family SMSFs

Many small business owners who run a family business and are nearing retirement face the significant decision of whether to include their adult children in their self-managed super fund (SMSF) as part of their personal and business succession planning.

Including children in a family SMSF can have a critical impact on family relationships and finances, especially if parents and adult children work together and share ownership of a family business.

While potential benefits exist through well-planned intergenerational SMSFs, it is crucial for owners to compare the possible advantages and disadvantages of intergenerational SMSFs.

Potential advantages

A popular strategy among family business owners is to hold their business premises in a family SMSF indefinitely so the ownership and management of the business can pass to the next generation. This strategy can also help build-up enough assets in the SMSF to be used to pay out the parents’ retirement and death benefits if necessary.

Having two generations of a family in the same SMSF means a fund’s fixed costs are shared over a greater number of members.

Including adult children in ageing parents’ SMSF can help when making administrative and investment decisions for the fund. For example, parents can grant their children the authority to become their enduring power of attorney to make any financial decisions should the parents lose their mental capacity.

Potential disadvantages

Family conflicts can include disagreements over investment choices or family business decisions, break-up of parents’ or adult children’s marriages or even personality clashes. Family conflicts can also trigger the division of fund assets and, sometimes, the forced sale of fund assets.

Differences in investment goals and ideas can make running an intergenerational SMSF quite difficult. While it is possible to run different investment segments for different members depending upon a fund’s trust deed, this can add further costs and complications.

The four-member limit on SMSF membership can be quite an obstacle for families with three or more adult children. A way of dealing with this limit is to have multiple intergenerational SMSFs within the same family, which are called “parallel” funds.

Under such an arrangement, parents are usually members of all the family’s SMSFs. The funds typically have a share in the same assets such as business premises.

Posted on 21 March '16 by , under Super.

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Amnesty means that 24,000 businesses own up to underpaying Aussies superannuation

An amnesty scheme which ended earlier this month has caused around 24,000 businesses to admit to underpayment of their worker's super. A total of 588 million dollars will be distributed to almost 400,00 individuals.

The scheme, which covered payments from the introduction of super in 1992, gave employers the opportunity to come clean without any consequences as long as they paid the unpaid super as well as 10% interest for every year the money was overdue.

The ATO will be directing its attention at any businesses that did not admit fault and these businesses will face severe penalties.

Many individuals are looking to access their superannuation early in order to have support during these times. Although there is criticism of early access to super, this facility has been helpful to many families to keep afloat.

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