Individual Trusteeship or Corporate Trusteeship – Which One for Your SMSF?
Self-managed super fund (SMSF) is a very popular type of superannuation. The main appeal of this type of super fund is the control that it gives people over their money. It is estimated that about 9 in every 10 SMSFs have individual trustees. This is in spite of the fact that corporate trustees often offer greater safety, just like nametags. You may ask why your SMSF should have a corporate trustee. Let’s have a look at some of the reasons.
The main appeal of individual trusteeship is the ability to make cost savings. A trustee company or corporate trustee has fees and costs that must be taken care of annually. These costs are transferred to your fund when working with a corporate trustee. You are saved these costs when you use individual members as trustees.
Members of a SMSF double as the trustees, provided you have more than one member. But if you have a single-member fund, you are required to appoint a second trustee. A corporate trustee offers you the only way out if you desire to have total control over your fund without needing to bring in an extra person. You are designated as the director of the fund.
It is a complicated process when SMSFs operate on the basis of individual trustees. This sort of arrangement could be quite costly if you need to change members and trustees for any reason. Since alteration of names will be involved, a new deed of appointment would be required and relevant organizations, including banks, will have to be notified. All these processes cost money and time. When a corporate trustee is involved, names of directors are simply changed, with relevant government agencies notified.
Directors or members of an SMSF enjoy limited liability under a corporate trusteeship. Provided you fulfill the duties expected of you as a director, your personal assets are spared if action is taken against the members of your SMSF for misuse of fund assets. This is not so with funds operating with individual trustees.
As previously noted, SMSF are required to have at least two members for the same individuals to double as a trustee. This then means that the death or exit of a trustee may lead to the demise of a fund. If the minimum number of people required for individual trusteeship is not reached, a self-managed superannuation fund may have to pack up unless a plan for such possibility had already been drawn. When a self-managed super fund uses a corporate trustee, the likelihood of the fund continuing to operate when a member dies or exits is guaranteed
Many lenders will need your SMSF to have a corporate trustee if your fund ever needs to borrow fund under a Limited Recourse Borrowing Arrangement. This is in spite of the fact that there is no legislation stipulating this as a requirement for borrowing.
The line between fund assets and personal assets may become blurred when SMSFs have individual trustees. The trustees may easily mingle fund assets with personal investments. A corporate trusteeship ensures that these investments are differentiated.
The use of a corporate trustee obviously offers great benefits and may be unavoidable for single-member SMSFs. However, ongoing administrative costs are more compared to individual trusteeship. The extra cost may likely be worth it in the long run. If you would rather not have a corporate trustee for a self managed superannuation fund
, the assistance of a specialist will be greatly beneficial.