One technical services manager has stressed the importance of having an SMSF exit strategy, with incapacity having a significant impact on funds that hold assets such as business real property.
Speaking to SMSF Adviser, IOOF senior technical services manager Julie Steed said she sees an increasing number of cases where incapacity affects the family or children of the SMSF member, particularly in situations where there are unusual assets held within the fund.
“The ones we’re seeing are concerned because they’ve got real business property in the SMSF,” said Ms Steed.
“It might be that their family or children are running businesses from those properties and at this stage the children don’t have sufficient assets to acquire the property, either with their own superannuation, or outside of their super.”
This therefore has “broader impacts than just the parents and their retirement savings and for these people it is often significant concern”, she said.
“If the [SMSF trustee] just has cash in managed funds and listed shares, it’s not such an issue – you can just roll it to a retail fund without much difficulty,” she said.
The difficulty with illnesses such as dementia is that people in the early stages of the disease tend to be extremely good at hiding it. While advisers should be discussing it with clients, Ms Steed recommended practitioners do so in a general sense, rather than pushing the client to admit they might be suffering from dementia.
“It’s better to say, ‘We’re concerned in a general sense and, based on the law of averages, [you] could be in that category, and if it does happen there’s obviously big ramifications, given the nature of the assets and those sorts of things’,” she suggested.
Ms Steed said it is vital for SMSF practitioners to ensure their existing clients have an exit strategy.
“ASIC have been very clear that there is an expectation in terms of best advice and best interest advice,” she said.
“Advisers [need] to actually take that on board. When they’re doing their regular reviews they need to look at in what circumstances the client will need an exit strategy; it’s not just dementia, it’s also things like the death of one or more of the trustees.”