One of the big decisions in the life of an SMSF is choosing whether to have individual trustees or a corporate trustee. There are pluses and minuses with both but just over 80% of new SMSFs have a corporate trustee.
The superannuation rules require as a minimum that an SMSF has either a corporate trustee or at least two individual trustees.
When you start an SMSF you will have the role of being:
- An individual trustee, or
- A director of a company that is the trustee (called a corporate trustee)
The trustee is responsible for making sure the fund runs correctly. All trustees of the SMSF and directors of a corporate trustee are equally responsible for managing the SMSF and making decisions. But you don’t have to do it all yourself if you feel you don’t have what’s required. You can get help from professionals who specialise in providing advice on SMSFs.
You will need to make sure the fund is viable and you have the time and skills to meet the obligations under the fund’s trust deed, any other governing rules and legislation. These require you to understand when contributions can be made to the fund, investment decision and paying benefits when required.
Who can be trustee?
If you are 18 or older you can be a trustee or director of a corporate trustee of your SMSF providing you are not under a legal disability (such as mental incapacity) or a disqualified person:
You can’t be a trustee if you:
- have been convicted of an offence involving dishonesty,
- have been subject to a civil penalty order under the superannuation laws,
- are insolvent under administration (including being an undischarged bankrupt), or
- have been disqualified by a court or regulator (for example, by the ATO or APRA)
A company can’t be a trustee if:
- a director or other responsible officer of the company (such as a secretary or executive officer) is a disqualified person,
- a receiver, administrator or provisional liquidator has been appointed to the company, or
- action has started to wind up the company
If you are under 18 you can't be a trustee, but you can be a member. One of your parents, guardian or legal personal representative can act as trustee on your behalf until you are 18.
If you are a disqualified person no one can act in your place as your replacement.
Types of trustee
All members of an SMSF are required to be individual trustees of the fund or directors of the corporate trustee. If your SMSF has individual trustees and you are the only member, the fund will need to have a second person be a trustee, but they don’t have to a member of the fund. If your SMSF has a corporate trustee you can have a second trustee if you wish but it’s not compulsory.
Here are some advantages and disadvantages of individual trustees and corporate trustees:
|Individual trustee||Corporate trustee|
|Succession||On the death of an individual trustee the deceased member’s legal personal representative may be appointed until the deceased member’s benefit has commenced to be paid. If only one trustee remains a replacement trustee, who is not a fund member, must be appointed or they must move to a sole director corporate trustee. The fund has up to 6 months to comply to remain an SMSF. Investments of the fund are required to be transferred to the names of the current trustees of the fund.||A corporate trustee continues in the event of the death of a director. The fund investments remain in the name of the company as trustee and provide more certainty in relation to control of the SMSF.|
|Ownership of fund assets||Fund assets are required to be registered in the name of all fund trustees. When a trustee leaves the fund the assets will be required to be registered in the names of the new or replacement trustee||The recording and registering assets are generally simpler than individual trustees. Fund assets are registered in the name of the corporate trustee. Any change in director will not require a change to the name in which the fund assets are registered.|
|Separation of assets||The fund’s assets must be kept separate from any assets held personally by the trustee. There is a risk that fund assets are intermingled with personal assets.||Because the fund’s assets are held in the name of the company acting as trustee for the fund there is less risk that the company assets will be intermingled with other assets such as those of the fund members.|
|Penalties||If there is a breach of the superannuation laws, administrative penalties may be imposed on each trustee.||If there is a breach of the superannuation laws, administrative penalties are imposed on the corporate trustee only and not each director.|
|Cost||Establishment and ongoing costs of individual trustees are generally less as there are no ASIC fees applying||Charges apply to the establishment of the company as well as the payment of an annual review fee each year to ASIC.|
If you are deciding on starting an SMSF or your SMSF has an individual or corporate trustee, it’s important to consider which type of trustee will suit you best. Now it’s up to you to make the decision.
Subscribe to SMSF News to receive my latest articles straight to your inboxGraeme Colley, Executive Manager, SMSF Technical and Private Wealth, SuperConcepts
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