SMSF – Individual or Corporate Trustees?

Are you considering a SMSF or do you currently have a SMSF? A SMSF can have either individual or corporate trustees. Do you know which type of trustee is best? A sole purpose corporate trustee is recommended.

The benefits of a corporate trustee and how this compares to an individual trustee are outlined below:

Succession

A company has an indefinite life span and cannot die. This makes succession to control more certain on death or incapacity.

Timely action must be taken on the death of an individual trustee to ensure the trustee/member rules are satisfied. SMSF rules do not allow a sole individual trustee/member of the SMSF.

Administrative efficiency

On the admission or cessation of membership where there is a corporate trustee, that person becomes or ceases to be a director of the company. The title to all assets remains in the company name.

The admission or cessation of a member where there is an individual trustee requires that person to become or cease to be an individual trustee. As trust assets must be held in all trustees’ names, the title to assets must be transferred to all of the individual trustees. This is
extra paperwork and costly.

Sole member SMSF

You can have a SMSF where one individual is both the sole member and the sole director of the company (corporate trustee).

A sole member SMSF must have two individual trustees.

Asset protection

As companies have limited liability, they provide greater protection where a party sues the trustee for liability or damages exceeding the fund’s assets.

An individual trustee may expose their personal assets if the SMSF is liable for an amount exceeding the fund’s assets.

Estate planning

A company offers greater flexibility for estate planning. Whereas the death of an individual trustee/member gives rise to considerable administration work and costs.

Penalties

Only one administrative penalty applies to the directors of a corporate trustee for each contravention. The directors are jointly and severally liable for each administrative penalty.

An administrative penalty is imposed on each individual trustee for each contravention. Thus, having two individual trustees doubles the amount of any administrative penalty for any contravention.

Overseas members

It is easier to manage a SMSF’s central management and control (CMC) with a corporate trustee provided strategic and high-level decisions are made in Australia.

Generally, it is more difficult maintaining CMC in Australia with individual trustees.

Lump sums and pensions

A SMSF with a corporate trustee can pay benefits either as pensions or as lump sums.

A member must surrender their pension entitlement if they wish to obtain a lump sum where there is an individual trustee. Extra paperwork is needed to surrender a pension entitlement to a lump sum payment.

If you have further questions regarding SMSFs or need advice on your SMSF please give the team at Legalsense NQ a call.

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