SMSFs – Should you have a corporate trustee or an individual trustee?

When establishing a Self Managed Super Fund (SMSF) you can have the individual members as trustees or otherwise you can have a corporate trustee. The corporate trustee may cost a few extra dollars in the short term, but there are good reasons why we would recommend in all circumstances there be a corporate trustee:

1. A company is an indefinitely continuing entity.This means if there is an individual trustee and the trustee dies, then there will need to be a new trustee appointed which will have to be in accordance with the trust of deed and this can also result in there needing to be documentation prepared to transfer the assets of the trust into the name of the new trustee.

2. Litigation exposure. Individuals acting as trustee of a fund can be held liable for any actions taken against the trust fund as they hold the assets of the fund in their individual names. If the result of the litigation is an award against the fund exceeding the assets held in the name of the trustees, then the personal assets of the individuals may personally become at risk. On the other hand, a company has limited liability and where the company has no assets in its own right then it is only the assets of the fund that are at risk.

3. In the case of an SMSF, if the SMSF allows for children to be admitted into the fund or other circumstances where there is a change of membership, if there are individual trustees then a change in trusteeship is also required to occur.

4. An SMSF that has individual trustees can only pay benefits as a pension. However, funds with corporate trustees can pay benefits as either a lump sum or as a pension.

5. If a fund with individual trustees has a sole member, the law requires that the fund must have a second individual trustee in order to be a compliant SMSF. If that sole member has no spouse or children, this will mean that the member will have to relinquish some control over the fund to another person. In this case, a sole member could therefore assume control over the SMSF by appointing themselves as the sole director of the corporate trustee.

6. As the costs in establishing a company as trustee are relatively low, the benefits in our view far outweigh those additional costs compared to having an individual trustee.

7. A mortgagee, for example NAB, will only lend to an LVR of 70% when an SMSF is purchasing a property if there is an individual trustee, but when there is a company as the trustee they will lend to at least an 80% LVR.

If you or your clients require any guidance or advice in relation to an SMSF, please contact our Commercial & Property Team.