SMSF Trustee

Under trust law, it isn’t possible for an individual to be both the sole SMSF trustee and the sole beneficiary of the fund. Accordingly, special provisions have been introduced for single member funds, which can have one of the following SMSF trustee structures:

• A SMSF corporate trustee, provided the member is the sole director of the SMSF trustee company; or
• A SMSF corporate trustee, provided the member is one of only two directors of the trustee company, and the member is not an employee of the other director unless related; or
• Two individual SMSF trustees provided the member is one of the trustees and the member is not an employee of the other SMSF trustee unless they are related.

There are also some permitted circumstances where an individual who is not a member of the fund can act as a SMSF trustee. This applies where:

• the member has died – in which case, the member’s legal personal representative can usually act as a trustee;
• the member is under a legal disability – the member’s legal personal representative or person holding enduring power of attorney can act as a SMSF trustee;
• the member has granted another person an enduring power of attorney; or
• the member is a minor – the minor’s parent can act as a SMSF trustee.

• the member has granted another person an enduring power of attorney; or
• the member is a minor – the minor’s parent can act as a SMSF trustee.

An individual can’t be a SMSF trustee if they are a ‘disqualified person’. This includes people who have been convicted of an offence involving dishonest conduct, are insolvent under administration or an undischarged bankrupt, have been subject to civil SMSF trustee penalties imposed under the SIS Act, or have been disqualified from acting as a SMSF trustee by the regulator.

A company can’t be a SMSF trustee if a responsible officer of the company is a disqualified person, a receiver or provisional liquidator has been appointed or the company is being wound up.

The number of SMSFs without corporate trustees should ring alarm bells when you consider the advantages that flow from having a SMSF corporate trustee. The high rate of SMSFs with individual SMSF trustees is probably due to the perception that individual trustees are cheaper than corporate trustees. However, we believe that individual SMSF trustees can prove more expensive in the longer- term.

Many SMSF trustees overlook the potential liabilities that may arise in relation to their role. We are aware of examples where an SMSF with individual SMSF trustees that invested in a property development that suffered a number of problems that has the potential to not only wipe out their entire super savings but also result in claims against the trustee’s personal assets.

The above scenario highlights that personal liability can easily inflict individual SMSF trustees and also highlights the attraction of corporate SMSF trustees. A corporate SMSF trustee will provide individuals associated with the fund with the peace of mind that relates to limited liability protection.

Another saving of corporate SMSF trustees relates to estate planning. Smoother succession planning can be put in place so that a successor director can more readily step in for a director who dies or loses capacity.

Costly paperwork is required to change individual to SMSF trustees upon the death or loss of capacity of an individual SMSF trustee. This is on top of the considerable paperwork that is usually associated with administering a person’s estate and obtaining probate of their will, etc.

A corporate SMSF trustee also gives single member funds the flexibility to be controlled by one individual who can be the same sole director/shareholder. In comparison, a single member fund with individual SMSF trustees still requires two individual SMSF trustees.

Corporate SMSF trustees also provide an SMSF with other administrative savings. For example, if Mum and Dad were individual SMSF trustees and wanted to add (or subtract) a child as a member of their fund, they would generally require a deed of change of trustee and would also need to transfer all fund assets into the joint names of the three individual SMSF trustees.

If they instead had a SMSF corporate trustee of their SMSF, they would only be required to add (or subtract) their child as a director. Naturally, a SMSF corporate trustee allows for a much more simpler and efficient process.

Corporate SMSF trustees are recommended as a better and more efficient option. Moreover, a sole purpose corporate SMSF trustee is preferred as this overcomes the risks that may relate to the company’s other activities.

The main disadvantage of a corporate SMSF trustee is that it is more expensive to set up currently $770, and marginally more expensive to maintain with an ASIC annual review fee of $43.

Despite the additional cost and work at set-up, we at Supervision SMSF prefer a corporate SMSF trustee structure for the reasons suggested above.

At Supervision SMSF we recommend a SMSF Corporate Trustee over Individuals because it is the most effective way to future proof your SMSF for the future. Sure it’s more expensive to establish and there is a small ongoing annual fee, but over the longer term it gives SMSF trustees less headaches. At some point everyone dies and unfortunately marriages don’t always last forever either. Don’t defer the pain, confront it now and get the job done right the first time.