SMSF trusteeship - Corporate or Individual?
There is a continuing and longstanding debate about whether to use a company or individuals as the trustee of a self-managed super fund (SMSF). There are many reasons as to why specialist advisers say there is a clear winner in this debate – always use a corporate trustee, keep reading to find out exactly why.
- Costs - Costs are often used as the main reason for not having a corporate trustee. However, the reality is that the company establishment costs, and any ongoing ASIC fees are significantly less than the costs associated with individual trustees. This is particularly important to note in an estate planning context – The death of a director results in one ASIC form being lodged, however, the death of an individual trustee can cause the need for a formal deed of change of trustee and then the subsequent notification to every asset register.
- Penalties - There is an administrative penalty regime that applies at the trustee level. As such, if a penalty is incurred for a single company trustee, there is one penalty imposed for each contravention. Whereas, for example, an SMSF with 3 individual trustees will incur triple the penalty – one imposed for each trustee.
- Administration ease - Every admission or cessation of a member (individual trustee) will trigger the need to have a formal change of trusteeship as well as the transfer of title to all assets of the SMSF. Whereas, title in the assets of the SMSF will remain permanently in the name of the corporate trustee, regardless of how many changes there are to directorships
- Perpetual existence - Companies have no ending date (unless specifically resolved to the contrary).
- Maximum number of trustees - The maximum number of individual trustees at law is 4. Following the 2018 Federal Budget announcement, SMSFs considering larger numbers of members will need to have a company as trustee, as there are no legal limitations on the number of directors or a trustee company.
- Compliance - The use of a special purpose corporate trustee more easily enables appropriate levels of record-keeping, legislative compliance and overall governance in line with what the ATO and Auditor expect to see.
- Sole member funds- If you have a sole member SMSF with a corporate trustee this allows the one individual to be both the sole member and sole director. A sole member SMSF with individual trustees must have two people appointed. This can open up many issues that are outlined above.
It is important to fully understand the ramifications and differences between having a corporate or individual trustee. For further information please contact our office.
The Money Edge | Bundaberg