A Self-Managed Superannuation Fund (“SMSF”) is a type of superannuation structure that allows members to control and manage their own funds. Unlike other superannuation funds, members have autonomy over the choice of investments they can make. The activities of an SMSF must be conducted through a trustee because the fund itself is not a separate legal entity. Each member of an SMSF must also act in the capacity of trustee whether this be as an individual or through a corporate entity.
It is important to consider the trustee structure of an SMSF from the outset. Initially, an individual trustee structure costs less and there are fewer reporting requirements, such as those of a company under the Corporations Act 2001. However, there are many benefits of having a corporate trustee for your SMSF which in the long term, are likely to outweigh the associated costs and administration. Given that superannuation is a long-term strategy, these benefits should be carefully considered.
Protection of members
Assets held in an SMSF for which a corporate entity is trustee, are held in the name of that company. Companies have limited liability and directors are generally not personally liable for company debts. This provides greater protection should the trustee company be sued or the SMSF become insolvent.
Administration – changing fund members / changing assets
The appointment of a corporate trustee allows for easier administration when changes in the structure and membership of the SMSF occur. Such changes might be brought about by the addition of children as members to the fund, the death of a fund member or divorce or separation of fund members. Because fund assets are held in the name of the corporate entity rather than individually, it is unnecessary to transfer the ownership or registration details for each asset held. This results in less administration and significant cost savings.
If a single-member fund has a corporate trustee the fund member may be the sole director of that corporate entity. If a corporate entity is not appointed, then the rules require that another person (in addition to the sole member) be appointed trustee. This may not be desirable for the fund member who wishes to have autonomy over his or her own SMSF. A further issue with sole member funds is that the death or discontinuance of a trustee means that the fund cannot continue unless an additional trustee is appointed. This situation is unlikely to occur in the case of a corporate trustee.
It is also recommended that a sole purpose company be used as the corporate trustee which results in lower ASIC fees and assists in separating the affairs of the fund with any other activities.
Tim Hayter, Principal, Mid West Lawyers
This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.