I cannot recall setting up an SMSF in the last couple of years without a corporate trustee. However, historically many SMSFs have been established with individuals as trustees. While this is allowable under the SMSF rules, the majority of superannuation professionals would agree that a corporate trustee is the most preferred trustee for an SMSF.
So, why is a special purpose corporate trustee better?
Corporate trustees can provide limited liability to the directors of the trustee company, particularly where the fund holds commercial or residential property.
They provide for clear segregation of the assets of the fund from the member’s personal assets. The legislation states that trustees are required to ensure that investments purchased by the fund are held in the correct name of the fund. For example, the assets should be held in John and Jessie Citizen ATF Citizen Super Fund. It can become confusing where the trustees hold joint accounts which can lead to inadvertently using the wrong account.
Situations arise that can cause a change in the membership and thereby trusteeship of a fund; for example, the addition of a child or spouse, the removal of a member to roll out to another fund, or the death or inability to act as a trustee. A corporate trustee provides for simpler administration in relation to a change of the members/trustees of the fund. Directors of the trustee company can be added and removed by lodging a form with ASIC. This will change the trustee without the need for a change to the assets or the deed. Where the trustees are individuals, this will result in having to change the names of individual trustees on all of the assets of the fund. This is a time consuming and sometimes costly exercise, and is in addition to the need to change the trust deed each time.
From an estate planning perspective, a corporate trustee allows for simpler succession of the trustee. A corporate trustee will continue to act and satisfy the rules in the event of the passing of a member. This is not the case for individual trustees. In the case of a two-member fund, where one member dies, another individual will need to be appointed as trustee (ie Legal Personal Representative) or a corporate trustee added at this time. This creates time consuming paperwork and cost at a difficult time for the surviving member or family.
Having individuals as trustees can also limit your investment options. If you are considering borrowing to purchase property in your SMSF, most lenders require that the trustee be a corporate trustee.
While it is more expensive to establish a SMSF with a special purpose corporate trustee (around $1,000 extra), it can easily be argued that the benefits associated with having a corporate trustee far outweigh the initial out of pocket expenses. The ongoing cost of keeping a corporate trustee registered is currently only $44 per annum.
We are encouraging our clients with individual trustees to consider the advantages of changing to a corporate trustee. While there will be some additional administration, as the assets are changed into the new trustee name, we can guide you through this process. We have prepared a factsheet on this process which is available to download here: Reasons for a SMSF trustee company.
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