The reasons for a corporate trustee for SMSFs
The trustee of a super fund may be either individuals or a company.
It is best practice for a self managed superannuation fund (SMSF) to have a corporate trustee (company) – in fact a sole purpose corporate trustee. Such a company only acts as trustee of the fund – it does not have any other function. It reduces the opportunities for mistakes and provides protection from business creditors.
The advantages of a corporate trustee are as follows:
Breaches of Law:
A sole purpose corporate trustee also has the benefit of lower penalties under superannuation law if the law is contravened. Where a fund has individual trustees, penalties are generally imposed on each trustee whereas if a company is trustee any applicable penalties are levied on the company only.
Administrative ease upon death:
When an individual trustee dies the name in which all of the assets are registered has to be changed. This creates significant administrative issues not just in time but also in effort including;
- Contacting every financial institution, share register etc in respect of each SMSF asset;
- Determining the relevant administrative procedure of each financial institution to implement the change of name;
- Following up each financial institution to ensure these changes are actually made;
- Where the fund holds real estate a change in trustee means a transfer of dutiable property. At face value that would give rise to ad valorem duty. It would then be up to the trustee to convince the revenue office that an exception applies, or only nominal duty applies;
- Companies do not die. They continue even if a shareholder or a director dies. If a director dies only ASIC needs to be informed.
Administrative ease upon changes in fund membership
Where trustees are individuals all members must be trustees. So, if the SMSF membership changes then the trusteeship must change. Therefore, all the changes and admin burdens listed before apply.
Where a company acts as trustee only the directorship of the company needs to change and hence all the administrative burdens and issues are avoided.
Protection from creditors of fund members
If there are individual trustees then the assets of the fund are registered in those names and aggressive creditors will pursue in that context even though they are acting in the capacity of trustees. A company structure reduces this possibility.
The disadvantages of a corporate trustee
Generally, there are only two disadvantages:
- The cost of setting up the company
- The ongoing cost of the ASIC annual review and related preparation costs if applicable. ASIC fees are less than normal private companies where the company’s role is a sole purpose trustee company.