Without putting too fine a point on it, retirement is a journey from ceasing work to the end of life, and it is far from a homogeneous experience. Circumstances change and sometimes change suddenly. At Gary Weigh & Associates, we see retirees going through three broad phases.
Settling in Phase
This period is different for everyone. Some people struggle with the lifestyle change while others take to retirement like a duck to water.
Enjoyment and Purpose Phase
The ‘golden years’ period everyone dreams about – travelling, doting over grandchildren, enjoying family and indulging in favourite pastimes. Lifestyle and quality of life through this period depends on how well the balance of health, money, relationships and purpose is managed.
Getting Old and Needing Help Phase
Unfortunately, age eventually brings health problems, both physical and mental. Like it or not, there is ultimately a slowing down, leading to restrictions in lifestyle choices and the need for assistance.
So how does this relate to SMSF trustees?
SMSF trustees retire just like everyone else. While everyone’s retirement experience is different, all retirees go through the broad phases listed above. So while an SMSF can be an appropriate retirement vehicle through the accumulation and transition to retirement years, there is likely to be a time on the retirement journey where trustee circumstances trigger the need for change.
SMSF Exit Triggers
The first is lack of interest, and it is more common than you might think. What was important during the working years can become unimportant in the ‘enjoyment and purpose’ phase as priorities change. And there is nothing like the feeling of time running short to refocus priorities.
Of course illness or decreasing cognitive ability can trigger an SMSF exit. Physical or mental health may deteriorate to the point where it may no longer be possible to perform the trustee role. The loss of mental capacity can not only disqualify a trustee but it is risky, given the degree of legal responsibility.
The loss of a partner can trigger an exit from an SMSF. When a partner dies, particularly if it’s the dominant trustee, the surviving partner often lacks the motivation to carry on the SMSF, even if he or she can legally continue as a sole director of the corporate trustee.
A change of asset allocation can trigger an exit. It is a common strategy to sell down assets in the pension phase to achieve a favourable CGT outcome. Without property and shares for example, the reason for maintaining an SMSF may no longer exist.
And finally, regardless of interest, capability, health or investment mix, there are some good reasons to exit an SMSF and move back to personal super. These advantages are discussed on Gary Weigh & Associates’ website in the article https://garyweigh.com/smsf-investment-it-pays-to-do-your-homework/
Review Outsourcing Arrangements
It can be risky for an incapacitated or disinterested trustee to continue to rely on an SMSF administration service. It is important to realise that an administration service is only an outsourced provider. At no point does such a service bear the onerous responsibility of the trustee. That’s why it is important to review regularly and consider other options that may be a lot safer.
This is general advice only. The purpose of this article is to provide you with information and education in a difficult area. As a licensed financial adviser, I strongly urge you to seek personal advice based on your individual needs and circumstances, before making any decision about self-managed superannuation.