Corporate or Individual Trustees for Your SMSF?

Corporate vs Individual TrusteesWhen establishing a Self Managed Super Fund (SMSF) one of the first questions that must be answered is “who is going to be the trustee of the fund?”. And whilst there are a few options available there is one that is head and shoulders above the rest from an administrative point of view and that is to appoint a Corporate Trustee.

According to the ATO, the majority of SMSFs still operate with individual trustee but this is sure to change as more and more advisers are now recognising the advantages of corporate trustees, something that SFR Advisory has already been endorsing for a number of years. One such advantage is that having a Corporate Trustee can make it significantly easier to administer the fund during times of major change, such as the death of a member or bringing on board additional members, such as dependants.

Individual Trustees

In the case of individual trustees there must be at least two trustees in order for the fund to remain legally valid and should one of them pass away there is a 6 month grace period for the surviving fund member to either appoint another individual trustee or move to a corporate trustee.

Corporate Trustees

However, in the case of a corporate trustee, once a company is set up to act as the trustee it is not restricted by the natural life cycle of the members and it can continue to administer the SMSF for as long as the intention is to keep it going. Therefore, if the children of the members decide to continue the SMSF there is no need to wind it up if when the original members pass away and it can continue in this manner for generations.

When a new member joins the fund, or an existing member leaves, the name on the ownership of the investments held within the SMSF (the bank accounts, share holdings, managed funds etc.) does not need to be changed as it is still the same company; just with new directors. The only changes that are needed involve the paperwork to add or remove the member, which represents a substantial administrative saving. As these changes can sometimes come about after the death of a member as mentioned above – often a relation to the surviving member – it also shows how setting up a corporate trustee at the beginning of an SMSF can save a lot of additional heartache during one of the most difficult times in a person’s life.

One important aspect that should be mentioned is that it is highly recommended that people establish a brand new company to act as corporate trustee rather than using an existing company. Again there are a number of reasons for this, too many to go into detail in a blog article, but one such reason is that creating a new company whose sole purpose is to act as a corporate trustee separates the SMSF investments (the client’s retirement savings) from any existing company assets and debts. If an existing company that was already trading was used and this company became bankrupt or was subject to legal proceedings, the SMSF investments would no longer be protected and could become entwined with the other assets and liabilities of the trading company.

If you any questions about this blog, Self Managed Super Funds or any financial matters, please don’t hesitate to contact Garth Lovelace at SFR Advisory in Perth on (08) 9220 5200.