Managing the SMSF liquidity problem

National Conference 2020

There are many risks an SMSF faces when majority of its funds are held in one asset such as property, particularly when an LRBA is used to acquire the asset. With the ATO raising concerns about SMSFs and the lack of investment diversification, clients with ‘lumpy’ illiquid assets must give proper consideration to diversifying their fund’s investments or ensuring the fund has enough liquidity to safeguard the fund’s assets.

This session will consider how insurance can play an important role in providing liquidity to an SMSF when paying a death benefit from the fund. Included is a discussion on why SMSF trustees should start with the end in mind and how insurance can provide a platform for a robust exit strategy following the death or disability of a fund member. We also consider the challenges with unrelated business owners in SMSFs and address their options in the event of death or disability.

At the end of the session, you will be able to:

  • Analyse the ATO’s approach to SMSF investment strategies and whether clients meet the regulatory requirements;
  • Discuss and address the difficulties that may be encountered on the death or disability of a member particularly when a SMSF has illiquid assets and/or a LRBA, and;
  • Identify the value for clients of including insurance as part of their SMSF investment strategy for liquidity purposes.

The contents of this resource are taken to be correct at the time of publication.

Disclaimer: Technical Papers contain factual information only and are prepared without considering particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. The information contained in this document does not constitute advice given by the SMSF Association to you. If you rely on this information yourself or to provide advice to other persons, then you do so at your own risk. The SMSF Association is not licensed to provide financial product advice, legal advice or taxation advice. We recommend that you seek appropriate professional advice before relying upon the information in this technical paper. While the SMSF Association believes that the information provided is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this paper is not considered financial advice for the purposes of the Corporations Act 2001. © SMSF Association