Self Managed Super Funds (SMSFs) is a Trust created in accordance with superannuation legislation and require a Trustee to control and make decisions regarding the fund.
When it comes to the Trustee (structure) of your SMSF, you can choose one of two options:
- Individual Trustees
- Corporate Trustee
Both structures differ in terms of requirements, costs, ownership and separation of assets, penalties and succession.
The structure of your fund requires careful consideration as the decision can have lasting impacts on the future operation of the fund and how it is managed.
We break down what each option entails and the benefits so you can decide which structure is best for your SMSF.
Individual Trustees
In short: Have between two and six members whereby each member is a Trustee of the fund and a member of the fund. Additionally, members cannot be employees of other members, unless they are related.
Benefits of Individual Trustees
Costs: Individual Trustees are a much more economical set-up option to begin with due to fewer administration tasks without the need to establish a company to act as Trustee. This means no ASIC fees and forms to complete.
Reporting: Individual Trustees have no ongoing ASIC reporting obligations and fewer procedural issues thanks to the flexible nature of the structure. There are no Trustee meetings or need to comply with company constitutions.
Succession: If an individual Trustee dies, the fund will not continue to operate unless a succession plan has been prepared. Additionally, if a member leaves or a new member wishes to join, the process to change the fund set-up can be a hassle.
Corporate Trustee
In short: A Corporate Trustee has between two and six members whereby members must be a Director of the Corporate Trustee and each member (Director) must be a member of the fund. All Directors must also have a Director ID and members cannot be employees of other members, unless they are related.
Benefits of a Corporate Trustee
A Corporate Trustee offers greater long-term benefits that individual trustees cannot provide when it comes to asset protection and liability.
Liability: Companies have the benefit of limited liability so if a Corporate Trustee suffers any liability, individual Directors will not suffer personal liability (other than in exceptional circumstances).
On the other hand, Individual Trustees expose their personal assets if they incur any liability as Trustee of an SMSF. If the individual’s right of indemnity against the SMSF is not sufficient to discharge the liability, the individual is still liable for the shortfall.
Succession: A Corporate Trustee offers simpler succession and control of the Trust upon the death of an individual. A company is able to continue to function after the death of one of its Directors. This means that the control of the SMSF can continue even after the death of an individual SMSF member/Director.
Assets: In a Corporate Trustee, assets are kept separate from the personal assets of SMSF members.
Administration: When a new member is introduced to an SMSF, they must become a Trustee of the fund. If the SMSF is a Corporate Trustee, a new Director needs to be appointed to the company and notified to ASIC. In the case of an individual Trustee, a deed of appointment needs to be executed. In most cases, all trust assets need to be transferred into the new Trustee’s name (or jointly with other Trustees).
This can cause major administrative hassles if the Trust assets consist of real estate and shares. These hassles can be avoided with Corporate Trustees as the SMSF assets are held in the company name, and the company remains as trustee.
Lending: Bank lenders generally insist upon (or at least prefer) an SMSF having a Corporate Trustee.
At the end of the day, an SMSF with Individual Trustees may seem like the more economical and easiest structure to choose. However, for long-term benefits, a Corporate Trustee will provide greater security when it comes to asset protection, liability and succession planning.
It’s important to think of the long-term future of your SMSF and how any changes may affect its operation and administrative tasks.
If you’d like to chat to us about establishing a SMSF or changing the structure of your existing fund, book a time in with one of the team.
