Setting up a self-managed super fund (SMSF) requires members to choose between using an individual or a corporate trustee.
Each trustee structure has varying requirements and implications for the members of the fund, so it is important to understand the differences. Members can choose up to four individual trustees or a corporate trustee, where a company acts as trustee for the fund.
For single-member funds with an individual trustee, there must be two trustees, and one trustee must be a fund member. If the fund member is an employee of the other trustee, the fund member and the other trustee must be relatives.
Single-member funds with a corporate trustee structure can have one or two directors. The fund member must be either sole director or one of the two directors. If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.
One of the most significant differences between the structures is the ongoing administrative requirements and establishment costs. If a corporate trustee is selected, ASIC charges a fee to establish a company as well as an annual review fee. Whereas, individual trustee arrangements incur lower establishment and ongoing costs as there is no need to establish a company.
Although using a corporate trustee can be more costly, there are benefits in selecting a corporate trustee especially in regards to the ownership and separation of fund assets. For example, changes in membership can be simpler. When a person starts or stops being a member of the fund, they become or cease to be, a director of the corporate trustee. Therefore, the corporate trustee itself does not change and the title to the SMSF’s assets is unchanged.
Where an individual trustee is removed or added, the titles of the SMSF’s assets must consequently change. The fees associated with these changes can be costly as state government authorities and most financial institutions charge fees for amending the titles of the fund’s assets.
In addition, a corporate trustee structure is a good form of asset protection, especially for professionals who work in industries where there is a high risk of being sued for damages (i.e. medical professionals). As companies have limited liability, this reduces the risk of personal assets blending with fund assets.
A corporate trustee structure is also suitable for those members who wish to borrow to purchase property through their SMSF. Most banks will require a corporate trustee structure for borrowing arrangements.
Another consideration when choosing a trustee structure is estate planning. An SMSF with individual trustees is not likely to continue to operate as usual when changes in trustees occur unless an appropriate succession plan has been prepared. With a corporate trustee, a company continues in the event of a member’s death.
Members need to carefully consider the type of trustee structure most suited to their individual needs and seek professional advice if they are unsure.