Rolling family and succession planning, financial management and investment training into one, multigenerational SMSFs are a relatively new structure likely to play a key role in Australia’s intergenerational wealth transfer. We look at some of the considerations any family should pay when considering establishing a multigenerational fund or adding children to an existing SMSF.

What is a Multigenerational SMSF?

Legislation which increased the maximum number of SMSF members from four to six in 2021 was a critical enabler for multi-generational or family fund structures.

Now, up to six members, including parents, children and even in-laws can be part of the same Fund.  Announcing the change four years ago, the then-coalition government said they did so to offer more choice, flexibility, and large families the option to collectively manage their retirement savings without paying multiple sets of fees.

While SMSFs are increasingly popular amongst younger Australians, family SMSFs remain niche. The latest ATO data finds less than 0.3% of SMSFs currently have 6 members.

Regardless, multigenerational SMSFs hold appeal for families for several reasons, including:

1. Cost efficiencies: Shared administration and compliance costs between six members make family SMSFs more affordable for each member.
2. Investment scale: The ability to pool financial resources opens doors for members to larger-scale investments like commercial property. For instance, members can use a multigenerational SMSF to purchase a property, then lease it back to a member’s business, allowing the SMSF to diversify and grow at a faster rate than it might with fewer members.
3. Succession planning: Multigenerational SMSFs have built-in legacy strategies, avoiding the need to wind up the fund when an integral member passes away. Consequently, the fund’s assets remain intact, ensuring that wealth can be passed down to future generations without the need to sell investments or disrupt the fund’s strategy.
4. Knowledge transfer: Older members of a family fund have opportunity to share their financial management experience​. One major benefit of adding children to an SMSF is to teach them about the value of super and fundamentals of investing. On the flipside, younger members often bring fresh investment ideas.
5. Cash flow: Bringing children and younger savers into an existing SMSF improves liquidity of the fund. For example: if two members are retiring, but their fund’s capital is locked in illiquid assets like commercial property, the contributions made by their children under a multigenerational fund structure can satisfy pension payments for the parents.     

Multigenerational SMSFs Risk Factors

While there are perks, multigenerational SMSFs aren’t without their challenges. In fact, many of the pros, such as shared control and intergenerational planning, can also become points of tension or complexity if they’re not properly managed.

Key risk factors families should consider include:

• Liability: Every member of a multigenerational SMSF is also a trustee (or director of the corporate trustee), making each person legally responsible for compliance with super laws, even if they didn’t personally make a mistake.
• Family conflict or breakdown: Disagreements over investment decisions, benefit payments, or estate planning can cause rifts between generations or spouses, especially in blended or high-net-worth families. Careful planning, good communication and transparency, however, can avoid this.
• Life changes impact everyone: Divorces, bankruptcy, death, or if any member wants to exit the fund, can disrupt the structure or trigger unexpected asset sales, impacting all members.
• Decision-making complexity: More members equals more opinions. Reaching consensus on major decisions like property purchases or asset sales can become time-consuming and stressful within a multigenerational SMSF.
• Unequal benefit access: Members may be in very different life stages, with some contributing, some withdrawing. This can lead to perceptions of unfairness, especially if one generation feels they’re subsidising another.
• Administrative burden: The more members, the more complex the reporting, compliance, and tax obligations can be. Missed deadlines or errors could result in fines, penalties, or fund disqualification.
• Difficulty exiting: Exiting a multigenerational fund isn't always simple. Selling down assets to pay out a member may result in capital gains tax implications or liquidity challenges, especially with illiquid assets like property.
• Limited diversity of opinion: In some family groups, a dominant personality (or older generation) may dictate investment strategy, discouraging younger members from engaging or contributing new ideas.

These risks don’t mean multigenerational SMSFs are a bad idea. Rather, they just require care, planning, and strong communication.

Key Questions to Ask Before Starting a Family SMSF

Multigenerational SMSFs are powerful tools for families serious about long-term wealth building and intergenerational planning. But they require a high level of trust, transparency, and governance to be successful.

Before setting up a family SMSF, it's essential to ask a set of questions covering compliance, family dynamics, and long-term goals. Some of the most important questions to ask before starting a multigenerational SMSF are:

1. Are we all aligned on the goals of the fund?

• Are all members committed to a shared investment strategy?
• Do we agree on how decisions will be made?
• How to handle disagreements?

2. Who will act as trustees (or directors of the corporate trustee)?

• Is everyone eligible and capable of fulfilling legal duties?
• Should we use individual trustees or a corporate trustee for succession planning?

3. What are our family dynamics like – are there any risk factors?

• Are there any risks of future conflict (e.g. divorces, estranged children)?
• Is it realistic for these family members to manage money together over the long term?

4. How will we manage contributions and benefits fairly?

• Are all members in different life stages (for example, accumulating vs. retiring members)?
• How do we make sure one generation doesn’t unintentionally disadvantage another?

5. Do we have a solid grasp of legal and compliance obligations?

• Are we ready to take on the annual audits, reporting, and administrative work?
• Have we spoken to an SMSF specialist or advisor?

6. What are our plans for succession and exits?

• What happens if a member dies, divorces, or wants to leave the fund?
• Do we have a strategy for replacing members, or winding down if needed?

7. Is a multigenerational SMSF the best option for our goals?

• Would individual SMSFs or retail/industry funds with estate planning tools be more suitable?
• Are there better ways to manage shared family wealth (e.g., family trusts or testamentary trusts)?

Pre-work to establish transparency in planning is critical because misaligned expectations can lead to conflict down the road. It’s worth considering whether an SMSF is the best tool for the family’s goals in the near- and long-term future. Sometimes a family trust or individual super fund may be simpler and better suited. In any case, as always, seeking professional advice before diving in can help ensure the structure is robust, compliant, and built to last.

For support with your SMSF, complete the form below or contact us now: smsf@primefinancial.com.au