There are several related issues that need to be discussed:
1. How are the properties held- as joint owners or tenants-in-common? Very important -A SMSF cannot own an asset as a joint tenant. Therefore it is assumed that the property is held as tenants in common in compliance with the SIS Act. Each person is able to sell or dispose of their separate interest in the asset and to deal with that interest under their will.
2. Are the properties completely paid up, and held in the SMSF itself, or are these properties under a limited recourse borrowing arrangement with a bank, and held in a holding trust or bare trust by the Holding Trust's trustees?If it is under a limited recourse borrowing arrangement under a Holding Trust, then the lender eg the bank has no other recourse other than to the real property in the arrangement.
3. Did the SMSF utilised some estate planning techniques eg TPD and Death benefit policies purchased through SMSF funds for members of SMSF that allowed for payment of benefits in the event of death or incapacity, so that there is no need to dispose of the properties?
The whole idea is to use some estate planning techniques within your SMSF in a possible event similar to that raised up by you.
Perhaps you will like to share with us your ideas on these? Thanks.
