Individual -vs- Corporate SMSF Trustee
Should I have a corporate or individual trustee for my SMSF?
A common question we are asked is whether you should use a corporate or individual trustee. As a general rule of SMSF, each member must be an individual trustee and each individual trustee a member of the fund. In the alternative if the trustee is a corporate trustee, each member must be a director and each director must be a member.
COSTS
Initially costs of individual trustees are cheaper as there is no set up or ongoing cost. However, due to the above general rule, if a new member joins, the composition of the trustee also must change, resulting in a cost to change the trustee and then time and money to change the names of any assets held in the SMSF’s name.
The costs to set up a corporate trustee are approximately $720 including GST (ASIC registration fee, constitution of company, resolutions etc.) and also an ongoing $45 annual ASIC registration fee. With a corporate trustee, there will be no need to change assets, as the trustee composition does not change, as a new member is added as a director through a simple ASIC form, often done by the SMSF accountant.
ASSET SEPARATION
The use of a corporate trustee significantly reduces the burden and risk of SMSF having to prove its assets are separate. Separate assets are an important requirement under the SIS Act. If a separate entity is involved it reduces the risk of funds or assets being accidently intermingled with personal assets. Asset separation is also useful for some taxation (duty) requirements involved in vesting or transfer from one trustee to another or from a custodian trustee to the trustee.
SINGLE MEMBERS
A single member fund can have a corporate trustee, but a single member fund cannot be a single individual trustee. So single member funds require another individual person, in addition to the member, to act as co-trustee.
ASSET PROTECTION
In the event the SMSF (or its trustee) is sued for damages (ie if someone is injured on SMSF property) a corporate trustee may limit the exposure of liability, whereas individual trustees may have their personal assets exposed.
SUCCESSION
When a member dies, a corporate trustee offers greater flexibility, including continuance of the trustee if the fund has become a sole member fund, as the trustee composition does not change. Individual trustees give rise to considerable administrative problems including time-limits to rectify the trustee issues in an already difficult time, otherwise the fund may become non-compliant.
PENALTIES
Under the SIS Act certain breaches result in a penalty applied per trustee, meaning each individual trustee will be exposed and liable for the penalty. A corporate trustee is only one trustee and only incurs one penalty.
BNT LEGAL
BNT Legal can assist in the set up (SMSF Deed, corporate trustee or individual trustee) and succession of all your SMSF requirements. Please do not hesitate to contact us for more information.
