SMSF – to include or not to include all family members in the same fund

Regularly I am asked the question “Should we as a family pool our superannuation resources and establish a Self Managed Superannuation Fund (SMSF)”?

An SMSF commonly has one or two members but it is permitted to have up to four members.  So, if you are a husband and wife with two children, should you permit your children to be members of your fund or retain the fund as a two-member fund only?  In order to answer this question let’s explore the various advantages and disadvantages of adding family members, specifically your children to your superannuation fund.


Cost:  The main costs of an SMSF are essentially fixed costs, that is, the accounting fee, tax return, audit, establishing the investment strategy and preparing the relevant annual minutes of the meeting by the trustee(s).  By doubling the number of members, it would be highly unlikely that the fees for the SMSF compliance work would double.

Pooling resources:  By pooling funds, the superannuation fund may be able to buy an asset such as an investment property in the SMSF.  Without pooling their resources the members may not have sufficient funds to execute the acquisition.


Different investment objectives:  Depending on the trust deed it may be possible to run different investment strategies within an SMSF.  For example, the parents may opt for a more conservative approach whilst the comparatively younger children may opt for a more aggressive or riskier approach.  However, even though the deed may permit it, from a practical perspective the assets still require segregation which is sometimes easier said than done.

From 1 July 2017, some SMSFs are not permitted to use the segregated method for tax purposes. That is if a member of an SMSF has a total super balance exceeding $1.6 million as at 30 June prior, and that same member is receiving a super income stream, the SMSF will not be permitted to use the segregated approach when claiming the tax exemption on the income derived from the segregated assets.

While an SMSF in this situation can still segregate its assets for investment purposes, the inability to use the segregated approach for tax purposes, may eliminate some of the benefits and increase administrative complexity and cost.

Limit on members:  The Self Managed Superannuation Fund is allowed up to four members. This is a potential issue if there are more than two children and two parents.  How do you decide which children are to be included in the fund and who is to be excluded?

Family Conflict:  Each member of the SMSF is to be a trustee or a director of the trustee company. Depending on the family dynamics and personalities, will all family members agree on the investment decision of the superannuation fund?

Change in circumstances:  This can be a problem where one of the children who is a member of the family SMSF gets married and chooses to set up an SMSF for himself and his spouse. This member may choose to transfer his superannuation interest from the family fund to his new fund.  In this case, assets may need to be liquidated in the family superannuation fund to free up cash to transfer to the exiting member.  If the assets are mainly invested in ‘lumpy assets’ such as land and building or business premises, they may need to be sold in order to transfer out the exiting members’ benefits.  Not only can this cause cashflow issues but it may realise a capital gains tax liability.

Lack of privacy:  Now that the children are members of the SMSF they are privy to the type and value of their parent’s assets.  Some parents do not want their children to know their financial worth.  So if the family members are not open about their finances, pooling of superannuation can be problematic.

Relationship breakdown:  If one of the children, who is a member of the superannuation fund, goes through a divorce or a breakdown in a de facto relationship, then the Court may order a portion of that member’s superannuation to be paid to the spouse/defacto.  This is likely to affect all members if the majority of the funds are invested in say, one investment property or commercial property used in the family business.  As a result of this relationship breakdown, this asset may need to be sold.

The above represent a sample of some of the advantages and disadvantages of adding family members to an existing SMSF. 

Should you require any further information regarding superannuation, please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment.

The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.  It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.