SMSF's and Families - Should Your Children Join the Fund?


SMSF's and Families - Should Your Children Join the Fund?


Often self managed superannuation funds (SMSF’s) are referred to as family superannuation funds because they have the ability for mum, dad and two children to be members of the fund.  This might seem like a great idea, but there are actually two sides to the story.



Bringing children into your SMSF provides them with a degree of financial assistance by ‘sharing’ the running costs of the fund, as well as educating them on financial matters as they enter the workforce.  It also enables the ability to retain a valuable asset within the fund as it continues on with the next generation and the ability to access grandfathered structures which are no longer accessible, e.g. pre-1999 unit trusts.

SMSF members drawing pensions out of the fund may not need all of the cash drawn, but are too old to re-contribute themselves and therefore gift and re-contribute the excess funds as non concessional contributions for their children.

There are other practical benefits to adding younger members, e.g. mental incapacitation of older trustees, (although this can be better covered off via a power of attorney in place well in advance).



The most obvious drawback is that different generations have different priorities, and running the fund effectively and unanimously as fund trustees can have practical limitations, e.g. children too busy to action paperwork or assist in the overall strategy.

Another important thing to consider is what happens if there is a falling out between the children or the parents, or if one of the children becomes divorced.  De facto relationships are governed by the Family Law Act. If the latter occurs, the former spouse or de facto to your child could make a claim through the Family Court to claw back assets of their former spouse.  This leaves the SMSF party to a family law action, requiring disclosure of information which the family may otherwise like to keep private.

If you still decided to add the children, the Trust Deed should be strengthened to cover off any issues which may become problematic, by providing the right to terminate membership of the SMSF.  It is also important to ensure general housekeeping issues have been covered off, including estate planning, binding death benefit nominations and powers of attorney.


Whether the decision to bring children into the SMSF is a good idea will differ from family to family.  Should you be uncertain of what is the right decision for your family’s SMSF, or have questions relating to SMSF’s in general, please contact your relevant ESV engagement partner on (02) 9283 1666.


Article by Maree Macphail