The general rule for having up to six members of a SMSF is that those who have legal capacity must be fund trustees or directors if there is a corporate trustee. The fund’s trust deed may provide rules relating to the appointment and dismissal of trustees as well as meetings and trustee voting rights. This is important, especially with a family fund. Good planning and understanding the reasons for having the fund are essential to avoid any potential mess that may prove impossible, or extremely difficult and costly, to fix.
Extending to six members provides greater flexibility for families with more than four members to benefit. However, no matter how many members are permitted in an SMSF, there are pros and cons that apply. This may include the operation of the fund, investment decisions and paying benefits to members.
The main advantages of the proposed increase to six members are:
- Caters to larger families
- reduced operating costs.
- More efficient fund administration
- Greater ability to qualify as an Australian superannuation fund when one or more members travel overseas for a prolonged period, saving in administration costs.
Disadvantages of a six-member fund may include:
- Ensuring the fund’s trust deed can cater for more members.
- More complex administration
- Reduced efficiencies in decision-making
- Overall control and management of the fund
An SMSF with six members should have greater negotiating and purchasing power, and taxation strategies may be implemented more efficiently.
The negatives around fund investments need to be managed properly as investment considerations may be indecisive. In addition, due to the range of members’ ages, investment choice may vary significantly and naming conventions may hold up the final decision.
Compiled with information from Graeme Colley, executive manager, SMSF Technical and Private Wealth, SuperConcepts and Meg Heffron, Managing Director at Heffron