by Mark Phillips
Is there any real difference between Individual and Corporate Trustees?
A key consideration when establishing an SMSF is whether to use an individual or corporate trustee. Generally where the decision is left to the members they will opt for individuals as it is simpler and cheaper. However it may be a short-sighted decision that can cause additional problems and costs further down the track.
The difference in cost between the 2 options is not that great. Yes there will be an initial cost, but when amortised over the long term it is immaterial. The cost to set up a company through our corporate documents service is $649 including the ASIC registration fee. ASIC’s annual review fee for a special purpose company acting only as a SMSF Trustee is $55. The corporate trustee is not required to prepare financials or lodge any returns, so once set up the additional cost and administration is negligible.
Separation of Assets
Superannuation law requires that fund assets be held in the name of the trustee and be kept separate from personal assets. Where there are individual trustees the separation may not be immediately obvious, particularly so for assets where there is no provision to record the fund name. In some cases auditors may require additional documentation to satisfy themselves that assets are held on behalf of the fund. Assets held in personal names can potentially be drawn into disputes related to the individuals themselves regardless of that fact it has no relevance to their role as trustee.
Where members are added or removed from a super fund it is more complicated if the trustees are individuals, as the holding name for each asset will need to be updated. The requirement for each investment will differ, but will generally include as a minimum certified hard copies of the variation documents and ID for the new trustee. Whereas with a corporate trustee only the ASIC record needs to be updated which can be easily done on-line. In either case the ABR will need to be updated.
Single Member Funds
It is not possible for a single member to be a sole trustee as an individual. They must either enlist someone else to act as an individual trustee with them or establish a corporate trustee with a sole director.
The majority of SMSFs contain 2 members being a husband and wife where the fund will continue in the event either were to pass away. It is much more complicated to replace an individual trustee or update to a corporate once an individual is deceased. It can be an opportune time when the members are retiring and transitioning into pension phase, to raise the question of introducing a corporate trustee as part of the estate planning process.
New or Old
It is possible to utilise an existing company as trustee for a SMSF, but it is not recommended where that company has previously been or remains a trading entity. The rationale is that such a company can be subject to a dispute or legal action, which could lead to the wind-up of the company or compensation being sought. While such an action would never have a valid claim against the assets of the super fund, it may create issues that could have been avoided by incorporating a new company.
Increase from 4 to 6 members
The Senate Economics Legislation Committee has recently recommended to pass the Bill to increase SMSF members from 4 to 6. Having 6 individual trustees will magnify some of the issues we have discussed, and may be a catalyst to adopt a corporate trustee instead.