SMSF – Revisiting Corporate vs Individual Trustees
With the popularity of borrowing to invest in property in Self Managed Super Funds (SMSF), there has been an increase in demand in corporate trustee structures. This is because one of the common lender requirements for an SMSF loan is to have an SMSF with a corporate trustee.
Below is a very useful table comparing the characteristics of the two trustee options:
| CORPORATE TRUSTEE | INDIVIDUAL TRUSTEES |
|---|---|
| Sole member SMSF | Sole member SMSF |
| You can have an SMSF where one individual is both the sole member and the sole director. | A sole member SMSF must have two individual trustees. |
| Continuous succession | Trusteeship ceases upon death |
| A company has an indefinite life span; in other words, it cannot die. Therefore, a corporate trustee can make control of a SMSF more certain in the circumstances of the death or incapacity of a member. | If the SMSF has individual trustees, eg, a mum and dad SMSF, then timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied (SMSF rules do not allow a sole individual trustee/member SMSF). |
| Lump sums and pensions | Lump sums only payable on commuting pension |
| There is no dispute about an SMSF with a corporate trustee being able to pay benefits either as pensions or as lump sums. | Some practitioners argue that a member of a fund without a corporate trustee can only be paid a lump sum if they have first started a pension (and then they must surrender or commute that pension entitlement), as an SMSF trustee must be a corporation or have a primary purpose of paying a pension. Extra paperwork may therefore be needed. |
| Administrative efficiency | Extra and costly paperwork |
| When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. As the corporate trustee does not change, title to all the assets of the SMSF remains in the name of the corporate trustee. | To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to (or exits) the fund. |
| Greater asset protection | Less asset protection |
| As companies have limited liability, a corporate trustee will provide greater protection where a party sues the trustee for damages (especially if that company only acts as trustee of the fund). | If an individual trustee suffers any liability, the trustee’s personal assets may also be exposed (and the SMSF’s assets may be exposed if the individual is sued personally). |
| Estate planning flexibility | Extra administration and costs |
| A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change as a result of the death of a member. | The death of a member requires there to be a change of trustee, and this gives rise to considerable administrative work and costs at an inopportune time. |
| Single penalty | Multiple penalties |
| If the trustee does something wrong and the ATO hits it with an administratively penalty, the penalty will only apply once (because there is only one trustee). | If the trustees do something wrong and the ATO hits them with an administratively penalty, the same penalty will apply to each trustee (i.e., the total penalty will be increased based on the number of trustees). |
Source: NTAA Corporate
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Disclaimer:
The articles are of a general nature only and are not to be taken as recommendations as they might be unsuited to your specific circumstances.
The contents herein do not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions.
Your BND Financial Pty Ltd. adviser or other professional advisers should be consulted prior to acting on this information. This disclaimer is intended to exclude any liability for loss as a result of acting on the information or opinions expressed.
