Individual or Corporate Trustee for Your SMSF?
A self-managed superannuation fund (SMSF) is essentially a trust structure which requires the trustee to make decisions and administer the SMSF for the benefit of members. With the trust structure, it is a choice of either having individual members as trustees or having a corporate trustee where all the members are directors of the trustee company. Below are some considerations when deciding which trustee structure to use.
Individual trustees
As there is no need to set up a company to act as the trustee, it is cheaper and quicker to implement. Furthermore, company regulations do not apply as there is no corporate structure involved.
Generally, all members must be trustees or trustee directors of a SMSF. Existing state and territory laws may limit the maximum number of individual trustees to less than six. However, new superannuation rules applying from 1 July 2021 allow an SMSF to have up to 6 members. This means an SMSF with five or six members may not be able to use an individual trustee structure in certain circumstances.
Assets of a superannuation fund are legally owned by the trustee. Where an individual trustee structure is used, the legal ownership of all SMSF assets will change if there is a change in trustee (which is often caused by a change of members in the fund). This could be a time-consuming exercise as it may require for instance, the closure of the existing bank account and reopening of a new bank account in the name of the new trustees. Furthermore, fees may be charged by financial institutions for title change of assets.
In the event of death or disability of a trustee, control and administration of the SMSF is less certain under an individual trustee structure and succession planning issues may arise.
There is a higher probability of mixing up the trustees’ personal assets with the SMSF assets which are held by the trustees as legal owners. This can create issues such as difficulty in ascertaining accurately the taxable income of the trustees versus the taxable income of the SMSF when preparing income tax returns.
Corporate trustees
A corporate trustee structure is generally costlier to set up and operate, with additional compliance requirements such as the application of Director Identification Number, lodgement of ASIC annual return, etc.
Single member SMSF must use a corporate trustee structure.
Legal ownership of assets will not change even if there is a change of the directors of the trustee company.
Generally, a corporate trustee structure provides better asset protection for the individual directors of a SMSF trustee compared to an individual trustee structure. It is also easier to segregate the assets of the SMSF from the assets of the individual directors.
In the event of death or disability of a trustee director, control and administration of the SMSF is more certain under a corporate trustee structure.
You should consider these points and seek professional advice to determine which trustee structure is appropriate for your circumstances. We are authorised to give personal advice for all superannuation needs, including SMSFs and will be happy to assist.
GENERAL ADVICE WARNING: The above is general advice only and does not take into account your personal circumstances or objectives. You should seek your own independent financial and tax advice to ascertain whether and how the above applies to your particular situation and whether it is likely to meet your objectives, prior to making any financial and investment decisions.