Add a child to your SMSF? 5 issues to consider
Elizabeth Wang, a lawyer at Townsends Business and Corporate Lawyers, said clients considering setting up an SMSF often ask the firm if they can admit a child member into their SMSF.
She highlighted five issues that need to be considered before embarking on the creation of an SMSF. For ease of understanding, all questions relate to the example of a hypothetical couple, Bob and Barbara, who recently started an SMSF with a trust company and want to add their 17-year-old son as a member.
1. Does the trust deed allow a child to be admitted as a member?
According to Ms. Wang, the couple, as a member of the SMSF, “will need to consider whether the current rules of their fund allow a child member to be admitted to the fund.”
“If Bob and Barbara’s trust deed expressly prohibited the admission of a child member to the fund, then the rules of the fund would have to be changed to allow Ben’s admission as a child member.”
If the rules are silent on the issue, counsel said it might be appropriate to amend them to specifically allow the admission of a child member, which helps put the issue out of doubt.
2. Does the current investment strategy of the fund need to be revised?
With the placement strategies of a child member “substantially different from those of his [or] his parents, ”Ms. Wang said it would be important to consider whether the current investment strategy should be revised when admitting a child member.
3. Who can or should act as the representative of the child?
Ms Wang reminded nestegg that persons under the age of 18 are legally unable to act as a director of the company trustee.
“An authorized signing officer such as a parent, guardian or legal personal representative will be required to sign the admission and appointment documents of an administrator to act as a member and administrator on behalf of the child member”, she explained.
In the example Ms. Wang provided, Barbara decided to be a Representative Director on Ben’s behalf until she was 18.
The lawyer said she would need to receive a copy of the fund’s current general product disclosure statement, and will need to sign the application for membership documents on behalf of her son and provide her tax file number to the office. Australian Taxes (ATO), if necessary.
This is where the process and formalities can become key: “As Barbara has already been appointed as a full trustee director, she does not have to be re-appointed as a director.
However, Ms. Wang felt it was important to note “that if Barbara was not already appointed as a director, then her appointment as a director must occur before or at the same time as Ben’s admission. as a member of the fund ”.
She explained that “if the appointment is made after Ben’s admission, then the fund may not meet the definition of a ‘self-directed pension fund’.”
It is also important to inform the ATO of the change of fund member, Ms. Wang indicating that this can be done using form ATO 3036, AUSkey or ATO Digital Certificate.
4. Children’s contributions
Ms. Wang said it is worth mentioning, for Bob and Barbara, “that contributions paid for a child under 18 count toward their non-concessional contribution limit.”
According to the lawyer, this means that “if Barbara made a contribution for Ben, then the contribution would count towards Ben’s non-concessional contribution limit and would not count towards Barbara’s contribution limit.”
5. When the child is 18 years old
Once a child reaches the age of 18, he or she is legally able to act as a director of a full trust company, and anyone acting as a representative director for that child does ‘will no longer be held there.
Ms. Wang cited Article 17 (3) of the Pension Industry (Supervision) Act 1993 (Cth) (the SIS Law), which provides that a parent or guardian of a minor member may act as a fund trustee in place of the member while the member is under 18 years of age.
“A minor member should be appointed a director of the company trustee within six months of their 18th birthday to ensure that the trustee structure meets the requirements of the SIS Law and for the fund to meet the definition of a self-managed pension fund, ”she continued.
Alternatively, the lawyer said that at the age of 18, a young person could appoint his acting representative director previously as the superannuation attorney.
“In this case, Barbara will continue to act as [her son’s] representative director and he does not need to be appointed director.
If this is the path taken, the young person “should sign an enduring power of attorney to adopt this path and this should be limited to pension matters,” Wang said.
If the former child does not want to be involved in the activities of the trustee of the company, another option highlighted by Ms. Wang in the example of Barbara and Bob was that the son “could be made a director and then appointed Barbara a director. alternate “.
This would allow Barbara to exercise her son’s powers as director “for him until he decides to take on his role personally.”