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What Are The Advantages Of An SMSF Corporate Trustee
A self-managed superannuation fund (SMSF) can either have a corporate trustee or individual trustees. An SMSF can have up to 6 members, and generally speaking, the members are the same as the individual trustees (or the same as the directors of a corporate trustee).
At Leenane Templeton we recommend that an SMSF has a corporate trustee rather than individuals as trustees. The one downside of a corporate trustee is the cost of establishing the company. However, there are longer-term benefits of having a company which outweigh the up-front cost.
The Benefits of a Corporate Trustee include:
Having A Corporate Trustee
Continuous succession
A company has an indefinite life span and cannot ‘die’. Therefore, a corporate trustee can ensure control of an SMSF is more certain in the circumstances of the death or incapacity of a member.
Administrative efficiency
When members are admitted to or cease membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to the SMSF’s assets remains in the name of the corporate trustee.
Lump sums and pensions
An SMSF with a corporate trustee can pay benefits either as pensions or as lump sums.
Estate planning flexibility
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change as a result of the death of a member. A director can also have greater control over their succession plans by passing on their shares in the corporate trustee.
Greater asset protection
As companies are subject to limited liability, a corporate trustee will provide greater protection where a party sues the trustee for damages.
Sole member SMSF
You can have an SMSF where one individual is both the sole member and the sole director
Lower Penalties
The administrative penalty regime that commenced from 1 July 2014 typically only applies to a company once for each contravention.
Overseas Members
It is easier to evidence that the central management and control (‘CMC’) of a corporate trustee remains in Australia.
Having An Individual Trustee
Cease upon death
If an SMSF has individual trustees (eg Mum and Dad) timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied. SMSF rules do not allow for single member funds to have a sole individual trustee, so if Mum or Dad die, the surviving spouse must appoint a co-trustee.
Extra and costly paperwork
To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund.
Paperwork for lump sums
The SMSF rules require that a lump sum can only be paid by surrendering a pension entitlement or commuting a pension, which gives rise to extra paperwork . You cannot simply pay a lump sum benefit.
Extra administration/costs
The death of a member requires there to be a change of trustee, and this gives rise to considerable administrative work and costs at an inopportune time.
Less asset protection
If an individual trustee suffers any liability, the trustee’s personal assets may be exposed.
Sole member SMSF
A sole member SMSF must have two individual trustees.
Higher Penalties
A penalty can be imposed from 1 July 2014 on each individual trustee for each contravention. Thus, having two individual trustees can double the administrative penalty that would otherwise apply to a corporate trustee.
Extra Risk
An SMSF with individual trustees would generally have greater difficulty showing its CMC remained in Australia.
A More Detailed Look at Trustees:
SMSFs: Weighing Corporate Trustees vs. Individual Trustees
When establishing a Self-Managed Super Fund (SMSF), one crucial decision to make is whether to opt for a corporate trustee or individual trustees. Both choices come with their own sets of benefits and drawbacks, which can significantly impact how your SMSF operates. This comprehensive guide will shed light on the key differences between a corporate trustee and individual trustees to help you make an informed choice.
What is an SMSF Trustee?
An SMSF trustee is responsible for managing the fund in accordance with the Superannuation Industry (Supervision) Act 1993 (SISA). The trustee makes decisions about the fund’s investments, ensures the fund meets legal requirements, and manages the fund’s administration. An SMSF can either have individual trustees or a corporate trustee.
Individual Trustees
In an SMSF with individual trustees, every member of the fund is a trustee. There must be at least two individual trustees, and they are personally liable for the decisions made regarding the fund.
Corporate Trustee
A corporate trustee is a company that acts as the trustee of the SMSF. All members of the fund must be directors of this company. The company holds the assets of the SMSF in its name for the benefit of the fund members.
Differences Between a Corporate Trustee and Individual Trustees
1. Liability
As companies have limited liability, they provide greater protection where a party sues the trustee for damages. This can provide a level of protection to the members’ personal assets in the event of a claim against the fund. With individual trustees, personal liability could extend to their personal assets.
2. Membership Changes
When a member joins or leaves an SMSF, changes to the title of the fund’s assets must be made. With individual trustees, this process can be time-consuming and costly, as asset titles need to be changed each time a trustee changes. In contrast, with a corporate trustee, the company remains the same even when directors (members) change, simplifying the administrative process.
3. Succession Planning
A corporate trustee can provide smoother succession planning. If a member (director) dies, the company continues to exist, and control can be efficiently passed to the remaining members. With individual trustees, if a member (trustee) dies, the remaining trustees may have to restructure the fund to meet legal requirements.
4. Cost
Establishing a corporate trustee involves initial setup costs and ongoing ASIC review fees. These costs are generally higher than those associated with individual trustees. However, these costs may be offset over time by the benefits and convenience offered by a corporate trustee.
Frequently Asked Questions
Q: Can I change from individual trustees to a corporate trustee?
A: Yes, it is possible to change from individual trustees to a corporate trustee. However, it involves administrative steps such as establishing a company and transferring the ownership of SMSF assets, so professional advice should be sought.
Q: Is there any difference in the way the two types of trustees are regulated?
A: Both types of trustees are regulated under the Superannuation Industry (Supervision) Act 1993. However, a corporate trustee is also governed by the Corporations Act 2001, and the company must comply with ASIC requirements.
Q: Which type of trustee structure is most common in SMSFs?
A: Both trustee structures are prevalent. The ATO and various industry experts have been increasingly recommending a corporate trustee structure due to its advantages in certain situations.
Conclusion
Choosing between a corporate trustee and individual trustees for your SMSF is a critical decision with long-lasting impacts on your fund’s operation, cost, and flexibility. While a corporate trustee often provides advantages in terms of administrative ease, succession planning, and liability protection, it does come with additional costs. Conversely, individual trustees may be more cost-effective but present more complications in the event of member changes. As each SMSF is unique, it’s advisable to seek professional advice tailored to your specific circumstances when making this decision. Our SMSF Specialsit Advisor TM can help establish your self managed super fund.