Many couples in long-term relationships think about establishing a joint self-managed superannuation fund (SMSF) to combine their superannuation, and take control over managing their retirement savings.
It makes sense on many levels: you already have combined finances, you’re planning a retirement together, and the rules require at least two (but not more than four) individuals to act as trustees for an SMSF.
However, there are many things to consider before making the decision to mix love and money by establishing a joint fund.
Weighing up the benefits
One of the main benefits of an SMSF in general is that it provides you with control over where and how your retirement benefits are invested.
Taking charge of your fund requires some level of financial and legal know-how.
As a trustee or director of your own SMSF, you or your significant other will need to adhere to the super and income tax laws governing SMSFs, which are regulated by the ATO.
Because of these requirements, you should ensure you’ve considered all other superannuation options, from a retail or industry fund to one that lets you have a say over where your money is invested, or even a separate nest egg investment outside of a super fund structure, such as property or shares.
One crucial question you may want to ask before setting up any SMSF is whether you think your SMSF can outperform your current super fund.
Or, in other words, do you and your partner have the skills and knowledge to do a better job than the professionals?
If not, can you source this expertise or educate yourself before making the switch?
There are also other considerations.
When entering into a joint SMSF you may need to ensure your goals are aligned with those of the other members.
The money in your SMSF can only be used to provide retirement benefits, so you and your partner may need to establish an investment strategy with the aim that your SMSF will satisfy your retirement plans.
You and your partner may also need to agree on who will make the key investment decisions. Do you have the same appetite for risk? How will you diversify or spread your risk?
What do you want to invest in? And how much money?
You’ll also want to nail down an exit strategy, and have planned for worst case scenario events like illness, death, relationship breakdown or simply a strong difference of opinion with your partner down the track.
An SMSF can have up to four adults aged 18 or older as trustees. So, depending on the stage you’re at in life, you may also want to consider the pros and cons of adding any adult children to your SMSF.
And just like you don’t want to argue about the housework, perhaps pre-agree on who will do what. For example, who will take care of doing the paperwork and ensuring the legal and tax obligations are met?
You should also be aware that the Superannuation Complaints Tribunal is not available to SMSF members.
Superannuation is generally the second biggest asset anyone will have, aside from their own home.
One of the benefits of pooling your super with a partner to establish an SMSF is that you will have a bigger sum to invest in the SMSF.
And an SMSF typically offers a wider range of investment options than a managed superannuation fund.
As with any major financial decision, it pays to read the fine print and make comprehensive cost benefit comparisons for all potential members when thinking about establishing your own SMSF.
For instance, you’ll take on all the running costs around your SMSF – things like investment costs, investment advice, legal fees, accounting, auditing and so on.
You’ll need to consider taking out insurance and organise any other added benefits that other super funds offer separately.
However, if you are combining your super with your partner the benefit is you’ll only pay one set of fees that covers all the members in an SMSF.
Savings can be significant with multiple members sharing the expenses and you also have greater control over your costs and any expenditure when you run your own SMSF.
Another benefit of SMSFs can be that all members can make asset contributions (known as in specie contributions) instead of cash in the form of shares, managed funds and commercial property, transferring them from their own names into an SMSF.
There may be positive tax benefits over time to consolidating assets under an SMSF, but you should investigate the precise tax and capital gains tax issues for your circumstances, and be aware that you cannot access these contributions until after you have reached preservation age.
The main advantage of an SMSF is control. You have complete flexibility over where and how you invest.
And an SMSF also has the advantage of allowing you and your partner greater control over estate planning, or how the benefits would be passed on and distributed after death.
Ultimately you and your partner will be in control of your SMSF, but there are many resources to assist you, from specialist investment advisors to companies like ESUPERFUND, which can assist with a framework for administering your SMSF's compliance obligations, including the fund's financial statements, tax returns and audits.
If you want to learn more about SMSFs, download an today.