When setting up an SMSF, you have two options when electing the trustee of your fund – choosing an individual, or a company to act as trustee.
If we look at the stats of Australian SMSFs, 65% of funds elect a company as a trustee.
So if you are in the process of setting up your SMSF and are unsure where to go, we have laid out the pros and cons of choosing a corporate trustee (company) over an individual.
There are pros and cons to each, however, it is generally recommended to choose a corporate trustee over an individual for the longer term.
When laid out side-by-side, the main downfall of a corporate trustee is the initial set-up cost.
However, it is a case of short-term pain, long-term gain, as the benefits down the track outweigh the initial costs.
Let’s look a little closer.
Advantages of a Corporate Trustee
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Continuous succession and estate planning
A company as corporate trustee will continue even upon the death of or resignation of a director.
This means a lot less stress and pain as any such changes are much simpler with a corporate trustee and can be managed by the remaining directors.
If an individual trustee, all records must be individually changed. In some cases, some investments may need to close as names cannot be changed and funds may be difficult to access for some time.
In regard to estate planning, a corporate trustee allows for greater flexibility, as the trustee does not change as a result of the death of a member.
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Separation of assets
One of the main advantages is the separation between your fund and personal assets.
It is the easiest way to distinguish asset ownership and ensures the assets of the fund aren’t mixed with the individual trustees personal assets.
Given that companies have limited liability, a corporate trustee offers greater protection if the trustee is sued for damages.
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Control for single-member funds
A fund with only a single member can have a trustee that is a company with a single director – but a single member fund cannot have only one single individual trustee. It has to have two.
So if you intend on running your SMSF on your own, you must have a company as a trustee.
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Administrative penalties
If ever hit with an ATO penalty, a corporate trustee will apply only once to the one corporate trustee. In an individual trustee situation, the penalty will apply to each trustee individually, therefore increasing the penalty amount paid.
Disadvantages of a Corporate Trustee
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Higher set-up costs
As mentioned earlier, the main disadvantage to a corporate trustee over an individual trustee is the initial set-up costs.
When setting up a corporate trustee, you will be up for an upfront establishment cost and annual ASIC levy.
Selecting the right type of trustee is an important decision when setting up your SMSF.
When you weigh up the pros and cons, there are significant advantages to paying the higher set-up costs for a corporate trustee for the long term.
For assistance with your SMSF structure, get in touch with us and make an appointment.
