Your Parents’ SMSF – It’s Not So Scary to Manage

As the adviser, accountant, and financial planner for the Smith family, I’ve had the privilege of working closely with John and Linda, an elderly couple with a self-managed super fund (SMSF), and their son Darren. Their story serves as a relatable example of how families can navigate the complexities of managing an SMSF as parents age.

A New Chapter for the Smith Family

John and Linda had been running their SMSF for years, making savvy investment decisions and planning for their retirement. But as they grew older, they started leaning on Darren for support. Darren, though not a trustee himself, was eager to help but unsure where to start. This is where I stepped in to guide them through this new chapter.

Understanding SMSF Roles

The first thing we did was clarify who was in charge. An SMSF is essentially a trust, meaning the trustees hold responsibility for managing the fund—not just for their own benefit, but for all members of the fund. In John and Linda’s case, they were both members and trustees of their SMSF. This dual role meant they needed to act in the best interests of each other as well as the fund itself.

To future-proof their SMSF, I recommended they consider transitioning to a corporate trustee structure. This setup simplifies the process if roles need to change, such as when Darren might step in. With their agreement, we established a company as the trustee and added John and Linda as directors.

Darren Steps In

At this stage, Darren wasn’t ready to take on formal trustee responsibilities, but he began assisting his parents with some of the administrative tasks. I reminded him of a key rule: trustees can work unpaid, but others (even family members) must be paid for their contributions. This distinction is critical to staying compliant with the Superannuation Industry (Supervision) Act 1993 (SIS Act).

As a precaution against financial exploitation—a sadly growing concern—I maintained open communication with John, Linda, and Darren. Transparency ensured everyone’s interests were protected and kept our focus on their financial well-being.

Planning for Trustee Changes

When John and Linda’s health began to decline, Darren became more involved in decision-making. With their consent, we took steps to formally prepare for a trustee transition. Darren was granted an enduring power of attorney (EPOA), enabling him to act on their behalf if needed. However, I explained that holding an EPOA alone doesn’t automatically make someone a trustee or director of the corporate trustee—additional legal paperwork is required for these roles.

By ensuring this process was properly documented, Darren became a trustee alongside his parents, sharing responsibilities and gradually easing into the role.

Investment Management

John had always managed the SMSF’s investments, but as his capacity diminished, Darren and I worked together to review the portfolio. We consulted a financial adviser to ensure compliance with SMSF rules, particularly those concerning property and related-party transactions. For example, the fund owned a commercial property leased to a family business, requiring strict adherence to market-rate dealings and meticulous documentation.

Preparing for the Future

When Linda sadly passed away, Darren, as executor of her estate, needed to determine how her super balance would be distributed. Together, we reviewed her binding death benefit nomination to ensure her wishes were honoured. This step was crucial, as an SMSF’s governing rules can be complex, and mistakes can lead to significant tax consequences.

Lessons for Families

John and Linda’s story illustrates that managing an SMSF isn’t just about financial returns—it’s also about relationships, planning, and adaptability. If you find yourself in Darren’s position, here are a few takeaways:

1. Understand the Roles: Clarify who the trustees are and what responsibilities they hold.
2. Future-Proof the SMSF: Consider transitioning to a corporate trustee for flexibility.
3. Plan for Trustee Changes: Use enduring powers of attorney and formal legal steps to ensure a smooth transition.
4. Seek Professional Advice: Consult specialists to navigate the rules and make informed decisions.
5. Communicate Openly: Keep all parties informed to avoid misunderstandings and ensure the best outcomes.

By taking these steps, you can help your parents manage their SMSF with confidence and ensure it continues to serve their needs—and perhaps even your own—well into the future.