At Sherlock Wealth, we’re seeing more grandparents interested in securing their grandchildren’s financial future. One approach that has gained attention is building a superannuation balance within a Self-Managed Super Fund (SMSF). Establishing an SMSF with future generations in mind can be a meaningful way to create a legacy, but it’s essential to navigate the rules and complexities involved.
Understanding the Basics
Establishing a superannuation balance for a grandchild in an SMSF can offer long-term benefits. However, depending on the age of the grandchild, different rules apply regarding their participation and control within the SMSF.
For grandchildren over 18, they are required to become a trustee or director of the corporate trustee in an SMSF. This grants them legal responsibility within the fund, a role that brings decision-making authority and potential tax implications. For those under 18, a parent or guardian represents them until they come of age, but control considerations remain crucial.
CEO of Sherlock Wealth, Andrew Sherlock, notes, “The decision to include family members, especially younger generations, in an SMSF is a powerful move, but it’s one that requires careful consideration of control, contribution caps, and future responsibilities.”
Navigating Control and Voting Power
An SMSF setup involving multiple family members can sometimes lead to differing priorities, especially as the family structure grows. This makes it critical to address questions around voting power within the SMSF. Depending on whether the fund operates by majority or by member balances, the family may need to adjust the trust deed or the corporate trustee’s constitution. These documents can outline how decisions are made, ensuring a smooth balance of control between generations.
To avoid these control complexities, grandparents may consider using a retail fund instead, though this comes with its trade-offs in terms of personalised investment choices and direct involvement.
Contribution Rules for Minors
For grandchildren under 18, non-concessional contributions are permissible, allowing the potential use of the three-year bring-forward rule. This can significantly boost their super balance early on, providing a strong foundation for compounding growth. However, concessional contributions—those that involve tax-deductible payments—are limited. They can only be made if the grandchild is employed or turns 18 by June 30. Once they qualify, they may even utilise the five-year unused concessional contribution cap, provided they haven’t reached the $500,000 threshold.
Importantly, any contribution made directly by grandparents on behalf of their grandchild will count as a concessional contribution. To keep this from impacting their concessional caps, grandparents should gift the contribution amount to the grandchild, who can then contribute it to the SMSF.
Building a Legacy Responsibly
Creating a legacy for your grandchildren within an SMSF is a powerful and thoughtful way to secure their financial future. By helping younger family members begin their super journey, grandparents can foster a foundation of financial awareness and responsibility. However, as with any financial decision involving family, transparency and trust are essential.
Andrew Sherlock highlights, “Taking the steps to include your grandchildren in your SMSF means not just giving them financial support but also instilling in them the values of careful planning and investment management.”
These are complex strategies, and we strongly encourage anyone interested in exploring this option to seek professional financial advice. If you’d like to discuss this further or are curious about alternative ways to build a legacy for future generations, reach out to our team at Sherlock Wealth. We’re here to guide you through every step of creating a secure, sustainable future for the ones you love.
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