SMSF Individual Trustee Or Corporate Trustee
Self-managed super funds are created and managed according to the superannuation laws. It requires trustees of the fund to control and make decisions for it and ensure that it is compliant to super rules and laws. Retail funds have the board of trustees to make decisions for the fund members, but in SMSFs, each member is a trustee or director of SMSF’s company trustee.
If you are thinking of setting up a self-managed super fund, you have to choose between having an individual or a corporate trustee structure. Each structure has rules to abide by and costs for putting them up. The SMSF trustee structure you choose will have implications on how the fund is administered, so choose wisely.
What are the differences between a corporate and individual SMSF trustee structures?
The individual trustee structure makes each member a trustee of the fund, while in a corporate trustee structure, a company functions as a trustee and the members are directors.
How does individual SMSF trustee structure work?
With the individual trustee set up, trustees are individual people. Each trustee is a member and there can be at least two trustees to a maximum of four. The trustees cannot be employees of another member of the fund unless they are related. Assets are registered in the name of individual trustees and are owned in trust for the members.
What are the benefits and disadvantages of the individual SMSF trustee structure?
Having individual trustees is cheaper to set up than a corporate structure and is cheaper to run. There is no need to set up a company and there are no fees charged by ASIC. It is also exempt from regulations that companies need to abide by.
One of the disadvantages of having individual trustees is always having to have two trustees, making succession planning problematic. Like when one member dies or passes away. Adding and removing members is cumbersome because there is a need to change the ownership of the assets in the fund. Since trustees are legal owners of assets, mixing of SMSF and personal assets is likely to happen. Declaration of trusts may also be required for some kinds of assets, like property. Each individual is required to pay penalties if breaches or non-compliance take place, resulting in paying penalties up to four times than that of a corporate set up.
How does a corporate SMSF trustee structure work?
SMSFs corporate trustee structure has a company that acts as the legal trustee of the fund. It can have not more than four directors and not have more than four members. All four members are also the directors of the company. Since this is so, they cannot be paid or be employees of a member of the fund, unless they are related. Assets are registered in the name of the company.
What are the benefits and disadvantages of having a corporate trustee structure?
A corporate SMSF trustee structure makes adding and removing members easy and more cost-effective. Legal ownership of assets does not change even when a member is added or removed. It is an option you can choose if you want to manage the SMSF by yourself. Succession planning is easier when you have two members and when one passes away. The remaining member can stay and be the sole director for the company trustee. When penalised for non-compliance or breaches, the penalties apply to the corporate trustee and not to each director, therefore saving on costs.
However, despite the advantages, there are some disadvantages to the corporate trustee structure. This includes additional expenses in establishing the company and more running costs. (Special purpose companies, however, whose main purpose is to act as a trustee, will reduce running costs and is not necessary to lodge additional tax returns for it. You only need to lodge returns for the SMSF). The company is also bound by corporation laws.
Which SMSF trustee structure is best for you?
Choosing the right SMSF trustee structure is important to complement your financial goals and how you intend to manage the fund. We suggest you think about your choices and discuss with your family or a financial adviser before making the decision. Ask questions like:
Are you aware of costs involved and regulatory implication for each of the SMSF structure?
What kind of investments do you intend to invest in? Some SMSF trustee structures are good for particular types of investment options.
What will happen to the fund when one member leaves or passes away?
Will you have other investments outside of the SMSF? Have you set protection to protect them in case a claim is made against the fund? Be warned that in an individual structure, assets outside your fund are not protected from liability claims.
There are more things to consider aside from these mentioned. To find out more, we suggest you seek advice from an SMSF auditor or professional. Talk to us and we will help you out.
Kingston Knight Audit are the Auditor Melbourne experts to contact when dealing with your trust account audit, SMSF Audit, financial statement audit, and internal audit requirements. Contact us today, Kingston & Knight Audit offers a free telephone consultation to establish how we can best help you achieve the assurance and compliance you require.