When thinking about setting up an SMSF, you need to decide whether you want to have individual trustees, or a company trustee where you would be a director. There are many factors to consider when deciding on the type of trustee structure for your fund, from the differences in cost to litigation risk and penalties for non-compliance.
As an experienced SMSF administration service provider, Aquila Super has seen it all. Below, we’ll discuss some of the considerations you’ll have to factor in.
Are there differences in cost between the types of trustee structure?
Establishing and maintaining a company trustee structure for an SMSF comes with extra costs. For this reason many people tend to be put off choosing this structure.
Can I use an existing company as a corporate trustee?
Although most people choose to establish a new company to be their corporate trustee, it is possible to use an existing company if you have one. Another option is to set up a ‘sole purpose SMSF trustee company’, for which the costs of establishing and maintaining are much lower than for a standard private company – you’ll pay a $45 annual fee rather than a $246 one.
While company trustees are more expensive, there are also advantages that can make them a more beneficial option.
What are the advantages when it comes to single member funds?
A basic requirement for SMSFs with only one member is that they must have either two individual trustees, or a corporate trustee with a sole director (or no more than two directors). But a sole member in an SMSF may not wish to appoint another individual trustee, as they may want to maintain full control over the fund. This individual might prefer instead to be the sold director of a company trustee.
What happens when the ownership of assets changes?
All SMSF assets must be correctly recorded in the name of the trustees ‘as trustee for’ the super fund. If there is a change in individual trustees, these ownership details must be appropriately amended, which can be both costly and time-consuming.
With a corporate trustee, however, the title on assets doesn’t need to be amended, making this process much more efficient. This is because even though members and directors might change, this won’t alter the trustee company and fund name. After the establishment of a fund, we commonly see member/trustee changes being made over the years due to marriage, divorce, the birth of children or the death of members.
How are different trustee structures penalised
If superannuation laws are breached, trustees may see a penalty imposed on them. In the case of individual trustees, penalties are imposed on each individual, while company trustees are treated as a single entity, and receive only one penalty.
An example of this would be if the trustee failed to prepare financial accounts and statements. For this breach, each individual trustee would be liable for $1,700 each – or $6,800 if there were four individual trustees. If it was a corporate trustee, however, the penalty would be just $1,700.
How does trustee structure impact succession planning?
As discussed above, single member funds must have either two individual trustees or a corporate trustee with a sole director (or no more than two directors). Because of this fact, the latter is often a simpler option when it comes to succession planning.
With an individual trustee structure, where you have a typical mum and dad SMSF and one member dies, the remaining member must appoint a new individual trustee. Although there is a temporary period where the spouse is often able to stand in as the other individual trustee where certain conditions are met, at the end of this period, a new trustee must be appointed. The ownership of each fund asset must then also be changed to reflect the new individual trustee.
When it comes to the same set-up for a company trustee, however, the remaining member can simply carry on as the sole director of the trustee company. This means a lot less stress and hassle for that individual.
What happens in the case of trustee litigation?
In the rare event that an SMSF trustee is subject to litigation, a corporate trustee is only exposed to the extent of the company assets – not the assets of the directors personally. Meanwhile, individual trustees are jointly and severally liable for actions taken against the fund, so the personal assets of the individuals may be at risk.
While the above information suggests that a corporate trustee has more advantages, there will be situations where an individual trustee structure will be adequate for the needs of an SMSF. It is also possible for the trustee of an SMSF to change from individuals to a corporate entity later or vice versa. If you have more questions about SMSF trustee structures, or need further help with your SMSF, get in touch with the experienced team at Aquila Super.