Starting a SMSF with older parents

Collectively my wife, myself and my parents have been looking at potentially starting a SMSF together. We are in our late 20's and they are in their 50's. Separately we each have existing property portfolios, so are familiar and comfortable with investing in the property market. Between all of us, we would have enough super to fund a 300-400k property through a SMSF. My parents have helped me a lot in life and part of wanting to look at this, is to provide another avenue of security/income for them through retirement.

I have an understanding of the taxation and capital gain benefits of buying property through super, but have not been able to obtain advice around how a SMSF operates when only half of the party are in retirement phase, so my question is something along the lines of..

"How does a SMSF operate when only 2 members are in retirement phase and the other 2 members are still in contribution phase?"

For example:
If the SMSF is producing 20k per year during their retirement phase, are they able to withdraw in pension phase 10k each per year for the duration of their retirement, whilst my wife and I remain in accumulation phase?

Also, not to ask a morbid question, but what happens when they pass on?

 

The rental income is split between all 4 members in relation to their personal account balances in the fund (you invest as one but earnings and members balances are tracked on an individual basis) Those in pension phase pay no tax on the rent/earnings while those in accumulation pay 15% less their share of any expenses/depreciation etc.

The pension phase members do not take the rent as income. Instead they can take an income stream supported by their member balance in the SMSF plus any earnings. The minimum pension is 4% of the balance on the 1st July each year up to age 65 and then 5% from 65-74, riding steadily from there onwards. If fully retired there is no maximum pension/income stream other than their overall member balance.

To plan for death you might consider using a Reversionary pension so that one spouses pension conutinues to the surviving spouse, avoiding you having to sell the property. On death of the second spouse the death benefit will usually need to be paid out of the SMSF which may result in you needing to sell the property to fund the benefit. A good plan would be for the younger members to build their member balances further in liquid assets over the years to fund the death benefit payout in cash rather than having to sell the property.

You should all understand the way this will work before committing to this strategy and avoid a nasty experience later on. Insurance and agreed buy/sell terms should also be considered.

 

Consider what could happen if:
- the SMSF does not have enough liquidity to pay the minimum income stream to the parents.
- you die before your parents

Could it be better for them to go it alone and have the fund borrow to acquire the property?