Buying SMSF investments from an estate

18 Aug 2021
Annie Dawson

Annie Dawson

Senior SMSF Technical Specialist

My client is a beneficiary of their uncle’s estate. They are wondering if their SMSF can buy an asset from the estate?

Join our newsletter

It might be possible for your client’s SMSF to buy an investment from the uncle’s estate, but you’ll need to check they are able to clear a few hurdles first.  

In the first instance, it will depend upon whether the uncle’s estate will be regarded as a “related party” of the SMSF. 

When will an estate be a related party of an SMSF you ask?  

The superannuation law has very specific definitions about what makes a person or an entity a related party of a super fund.  Depending upon the number of entities and people involved, it can become complex. But let’s try and keep this simple…

Generally, an estate will be a “related party” of an SMSF if: 

  • one of the executors of the estate is a member of the SMSF or a relative of a member, or
  • a member of the SMSF and/or one or more of their relatives “controls” the estate. 

People who are regarded as a “relative” of a member of an SMSF is extensive! In this context, a relative includes a member’s parent, grandparent, brother, sister, aunt, uncle, niece, nephew, lineal descendent or adopted child, the member’s spouse, or the spouse of anyone listed above! 

Whether a member and/or their relatives could be regarded as having “control” of an estate will depend upon the circumstances.  

If the estate is a related party of the SMSF, the super fund will be limited to purchasing certain types of assets including ASX listed shares, commercial property (if certain conditions are met) and units in trusts that are “widely held” (this will usually include managed funds and certain unlisted property trusts with many investors).  

Importantly, an SMSF will generally not be permitted to acquire other types of investments, such as residential property or shares in a privately held company.

There are a few other types of investments permitted, such as “in-house assets” (eg shares in a controlled entity) but these are relatively uncommon and due to limits on the value of in-house assets an SMSF is permitted to acquire, is often impractical.

As with all investments decisions, trustees of an SMSF must comply with the sole purpose test (i.e. the sole reason they are purchasing the investment is for retirement purposes only and not for any other reason, such as, helping provide the estate with liquidity or to snaffle that beach house they’d always loved as a child). Trustees also need to ensure the investment is purchased at market value (and market valuations to evidence this are obtained). The acquisition of the investment will also need to be in accordance with the fund’s investment strategy.

This topic is covered further in our new learning program, Education Bites. To subscribe or for more information, click here.