When deciding to establish a self managed superannuation fund (SMSF), one of the key issues to resolve is who will be the trustee.
Under the Superannuation Industry Supervision (SIS) legislation, a SMSF must have either a company or a group of individuals act as trustee of the fund. A single-member fund with an individual trustee must appoint a second individual trustee to comply with SIS legislation, with control and responsibility being shared by both trustees. A corporate trustee can have a sole director, therefore allowing a single member full control over the management of the fund.
Each member of the SMSF must also be a trustee or where the trustee of the SMSF is a company, each member must be a director of the company.
According to the Tax Office, almost 75% of SMSFs have individual trustees instead of a corporate trustee.
There are several points and potential advantages of each structure to consider.
Firstly, from an administrative point of view, all assets must be held in the name of the trustees.
In the case of individual trustees, this means that all trustee names must be on the title of all the SMSF’s assets and that any changes in membership - which can happen due to marriage, divorce or death or adding children to the SMSF - would require changes to the names registered on the title of assets. Changing the titles for every asset owned by the SMSF can be a time-consuming and costly process.
For corporate trustees, the only requirement is notification to both ASIC and Tax Office of any change of directors and members, as the name of the asset is still the name of the corporate trustee.
From an asset protection point of view, a corporate trustee is subject to limited liability, this may provide greater protection of personal assets. However, this may not necessarily provide protection for penalties under the SIS Act. The regulator is able to pursue any person involved in a breach of the legislation. For example, if the SMSF owns a property and a personal injury claim is made against the owner of the property, all assets of the owner are at risk to meet that claim. If the trustee is a corporation, the claim would be limited by the assets in the fund. If, however, the trustees are individuals, then their personal assets are also at risk.
If your superannuation fund wishes to borrow under the limited recourse borrowing arrangements, most of the major lenders will generally insist that the SMSF has a corporate trustee even though this is not a legislative requirement.
Finally, there are also cost considerations. There is an establishment cost for a new company along with an annual ASIC levy.
As you can see from the above, there is no hard and fast rule. It is always best to consider the most appropriate action for your individual situation.
Should you wish to discuss the establishment of a SMSF or perhaps the setup of your existing SMSF, please contact Ellingsen Partners.