SMSFs – Why choose a corporate trustee?
At first glance, it may seem that appointing individual trustees for your self-managed superannuation fund (SMSF) is the more cost effective and simpler way to go. With a corporate trustee, there are company set-up costs and then ongoing company secretarial and ASIC fees, so appointing individuals is initially a cheaper option. However, appointing a corporate trustee has many benefits which can outweigh these short-term savings.
No Intermingling of Assets
SMSF assets and investments are required to be held in the names of all trustees, so with a corporate trustee there’s no confusion as to who owns the assets. With individual trustees, ownership is not always clear – are the assets held by the trustees personally, or by them in their capacity as trustees?
Change in Members
Changes in members occur for a number of reasons including marriage, divorce, death, admitting your children to your fund and incapacity).
When a member that has individual trustees joins or leaves a fund or dies, superannuation law requires that they be added or removed as trustee, which requires a variation to the trust deed and updates to all asset ownership paperwork, a very time consuming and possibly costly process. On joining or leaving a fund with a corporate trustee, members can simply be added or removed as directors. No changes need to be made to any asset ownership documents.
Therefore having a corporate trustee makes succession & estate planning so much easier as a company has an indefinite lifespan. In the event of the death of a member, divorce or mental or physical incapacity, a corporate trustee avoids considerable administrative work and costs at a potentially difficult and challenging time.
One Member Funds
A corporate trustee also makes it easier to deal with one member funds, as it is possible to have a sole-director, sole-member fund. With SMSFs with individual trustees, it is a requirement by law to have two trustees, even if the fund is down to just one member. This means that the remaining member would have to relinquish some control over the fund to another person. With a corporate trustee, the sole member can have complete control of the fund by appointing themselves as sole director. Through either death, divorce or incapacity, many funds will at some point become single member funds.
Greater Asset Protection
A corporate trustee offers limited liability so it provides greater protection if a party were to sue the trustee for damages. The liability is limited to your shareholding in the trustee company and member balance, rather than your entire wealth.
Borrowing
If the SMSF intends to borrow to acquire an asset under the limited recourse borrowing arrangement provisions, most lenders usually require the fund to have a corporate trustee as they are easier to deal with.
Administrative Penalties
In the event of the SMSF breaching certain provisions of the superannuation law, a penalty would be applied to each individual trustee, whereas a corporate trustee would have the penalty applied only once.
How do we change to a corporate trustee?
- A ‘special purpose’ company will need to be established and registered with ASIC.
- The SMSF trust deed will need to be amended to replace the individual trustees with the new corporate trustee.
- All banks, brokers, share registries and property titles offices will need to be notified of the new corporate ownership.
The Costs
The costs include:
- Company Set Up $1,650
- Company Secretarial Fee $352pa
- ASIC Fee $46 pa
- Implementation Fee (this will vary from case to case and will be quoted upfront).
