Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 605

Meg on SMSFs: Tips for the last member standing

I’ve written before about what needs to happen when an SMSF member dies, and the remaining member (often the spouse) takes over. But a reader recently asked – what happens next? That is, when the sole member and trustee becomes unwell, elderly or simply less able to look after their SMSF?

An entirely reasonable starting point if this happens to you is to consider whether the fund (in fact superannuation as a whole) is still the right spot for your money. I wrote previously about some of the things that might prompt any of us to wind up our SMSF. Some of those might just trigger winding up the SMSF but leaving the money in super (i.e., transferring it to a public super fund such as an industry fund). But for some people, winding up the SMSF will also be the moment they take all their money out of the super system entirely.

Tax is often a key driver here.

Beneficiaries who aren’t considered ‘dependants’ for tax purposes (for example, financially independent adult children) pay tax on some, if not all, the super they inherit from a parent. The tax rate sounds deceptively low - if the parent is over 65, it’s a maximum of 15% plus Medicare. But remember it’s a tax on the super balance not its income. If the balance is large it could be a very substantial sum (for example, 15% of $1 million is $150,000). Some people have part of their super that is classified as a ‘tax free component’ which avoids this tax. But for many of us, the vast majority of our super is a ‘taxable component’ (check your last super fund member statement to see yours).

But let’s imagine for the time being that you’ve decided to keep your money in super and in fact want to continue running your SMSF.

What should you do about the management of your SMSF?

First, I’m going to assume someone in this position has already moved across to a corporate trustee and they are the sole director.

It’s worth remembering that any SMSF with one member is allowed to have a second director (who is not a member) just because they want someone to help out. If there’s an appropriate person, that might be a good first step. If I only had one child and was a lot older, I would certainly consider it.

One challenge is that it can only be one extra person – any more and they will also need to be members. So my challenge would be I have two children. Do I really want to give just one of them a lot of involvement (and therefore power) over one of my largest assets (my SMSF) and effectively leave the other out of it?

Probably not – if I was going to bring one child in to help me, I would include both and they would then need to become members of my SMSF. At this stage, that doesn’t appeal to me.

A second challenge is that to actually make a decision, most constitutions require a majority of directors to agree (so in this case, both directors). In other words, having a second person involved just provides support to someone who is still willing and able to be a trustee themselves. It doesn’t provide a solution if they’re genuinely not up to it for a time.

So this doesn’t necessarily solve our reader’s problem. Her concern was running the fund in the event of a short / medium term illness rather than permanent decline – say a short stay in hospital followed by an extended recovery. During that time, she might be too unwell to focus on the fund’s investments, dealing with her adviser, lodging returns, making pension payments etc. But she may fully expect to return to the director’s chair in due course.

Another idea

There’s a particular twist that might suit in this case – having alternate directors of the trustee company.

An enduring power of attorney (which I’ve written about before) is essential here. It’s required any time someone else (let’s assume it’s the adult children) can take over when necessary - either because they have formally replaced the member as a director or in this case where they are being appointed alternates.

Both my sons have an enduring power of attorney for me so either or both could become directors of my SMSF trustee company if I become unable to look after it myself (and resigned my own directorship). And they could also be alternate directors for me on the board of the trustee company.

An alternate steps in as a director (with all the responsibilities and authority that carries) any time the actual director doesn’t feel able to do it or isn’t available. (In fact some ‘normal’ companies have alternates for directors who are not able to attend all the board meetings etc.)

Note that when an alternate steps in, they are temporarily replacing their director – they can’t make decisions together with them. If our reader wants to bring this person in permanently as part of the team running her fund, she’ll need them to become a director in their own right.

She could have two alternates (as long as both held an enduring power of attorney for her). But only one can step in for her at any one time – she couldn’t set this up so that if she’s unwell, both fill the director responsibilities together.

She would need to make sure they could transact on the fund’s investments and bank account, deal with other providers etc. All of this highlights what is perhaps one of the most important steps – introducing them to the key players in your SMSF’s life well before they actually need to do anything for you.

Alternate directors aren’t used too often with SMSFs because they can create confusion (which name should your accountant put on the tax return, minutes, other key documents? It depends who will be making the decision to sign them!). But in cases like this – where the need is for short term help (albeit from someone who might eventually need long term help) it can be useful. It doesn’t require the existing director to resign / retire and surrender control. It just allows them to have someone else sub in from time to time. And while there is paperwork needed to appoint the alternate, they can step in for their director many times without needing formal paperwork to recognise that each time. It’s evident by the fact they sign resolutions etc.

Many company constitutions also require alternates to be approved by the existing directors – although even if the SMSF already had more than one director, it’s presumably acceptable to them.

Don’t forget that the alternate’s role is entirely dependent on the existing director remaining a director and having capacity. It’s not a permanent solution for someone who may ultimately hand over the reins to (say) their adult child(ren). At that time, the alternate would need to be officially appointed as a director in their own right.

Like every other aspect of life, it’s common for people to seek more and more help in running their SMSF as they age if their capacity declines. An alternate director may well be a great solution for someone just planning for short-term help in the meantime.

 

Meg Heffron is the Managing Director of Heffron SMSF Solutions, a sponsor of Firstlinks. This is general information only and it does not constitute any recommendation or advice. It does not consider any personal circumstances and is based on an understanding of relevant rules and legislation at the time of writing.

For more articles and papers from Heffron, please click here.

 

RELATED ARTICLES

Meg on SMSFs: Powers of attorney for your fund

How SMSFs are investing their money

Meg on SMSFs: Four ways super pensions are better in SMSFs

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.