Why I believe it is essential to have a company as trustee and the options to have individual trustees is short-sighted 
The over-riding benefits of having a corporate trustee, rather than individual trustees, are summarised in the following comparison table:
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Corporate Trustee |
Individual Trustees |
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Time to Grieve or Adapt The one main reason from 10 years experience with SMSF’s for having a Corporate Trustee is respect for your spouse or family’s needs in times of grief. Do you really want to leave them an onerous awkward and expensive set of tasks to carry out just because it saved you $700 |
Paperwork at the worst time Welcome to a nightmare. You have just passed away and your spouse has barely had time to start grieving but they need to manage the SMSF to administer pensions, investments and deeds. Minutes to record death of Trustee, Deed update to add a new Trustee or move to a Corporate Trustee, Off market transfer forms and identity forms and probate forms to put every investment in correct name(s). Worse still, deal with the Land & Property Management agency or Office of State Revenue and their endless forms! |
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Continuous succession A company has an indefinite life span; in other words, it does not die. Therefore, a corporate trustee can ensure control of an SMSF is more certain in the circumstances of the death or mental or physical incapacity of a member. |
Problems upon death If the SMSF has individual trustees, e.g. a husband and wife SMSF, then timely action must be taken on the death of a member to ensure the trustee/member rules are adhered to properly. (SMSF rules do not allow a sole individual trustee/member SMSF.) |
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Administrative efficiency When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to all the assets of the SMSF remains in the name of the corporate trustee. Especially useful when dealing with property in an SMSF. |
Extra and costly paperwork To bring in a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund. |
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Sole member SMSF You can have an SMSF where one individual is both the sole member and the sole director. Likewise if you are mentally incapacitated then your spouse can act as director under an enduring Power of Attorney to run the fund on their own without the need for interference by others. |
Sole Member SMSF A sole member SMSF must have two individual trustees. Does your spouse need to rely on your children, possibly from your first marriage! That’s really not going to work as we know what a problem blended families are when it comes to Estate Planning. |
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Meets Lenders Requirements If you want to borrow to buy a property via your SMSF then most lenders will require a Corporate Trustee of the SMSF as that is easier for them to deal with. |
Restricts Pool of Lenders If you do not have a corporate trustee the you are limiting the number of lenders that will consider your SMSF for a loan |
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Higher LVRs accepted With a Corporate Trustee many lenders will go to 80% on Residential loans and 70% on Commercial Real Estate |
Lower LVRs commonplace Due to legal concerns many lenders restrict the maximum borrowing , if any, of a SMSF with Individual Trustees to 705 for Residential Properties and 55-60% for Commercial Real Estate |
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Greater asset protection As companies are subject to limited liability, a corporate trustee will provide improved protection for the directors where a party sues the trustee for damages. I use an electrician as an example here when I cover this with clients. If he is comes on your property and is electrocuted because of the owners (SMSF) negligence then the SMSF may be sued but your own personal liability is limited to your shareholding and member balance rather than your entire wealth. |
Less asset protection If an individual trustee suffers any liability, the trustee’s personal assets may be exposed. Be careful of hiring a tradesman to work on a SMSF property as if they get injured they may sue you in your capacity as Trustee of the fund as well as the SMSF itself. Without the protection of Limited Liability provided by a Trustee Company your other assets may be at risk. |
What the ATO and ASIC think?
ASIC and the ATO prefer Corporate Trustees too. Last year, ASIC released a number of documents which outlined the advantages of having an SMSF corporate trustee.
More recently, the ATO have released a website and the following video that objectively outlined the pros and cons for corporate and individual trustees.
If the ATO’s comments are analysed in more detail, it is clear that there is an endorsement for SMSFs to have a corporate trustee.
The easiest way to comply with the ownership rules is for your fund to have a company set up solely for the purpose of being the corporate trustee of the fund.
If there is a change in directors of the company, you don’t have to change the name on the ownership documents for each fund asset as the trustee of the fund has not changed. Having a separate corporate trustee also reduces the chance of personal assets becoming intermingled with fund assets
Do you need more? Additional Advantages of a Corporate Trustee
- With a bit of preparation and planning combining use of your Will and Enduring Powers of Attorney, minuted resolutions and if needed clauses written into the deed a person (usually the “Executor” or “Legal Personal Representative”) can be immediately appointed as director so that the Fund can continue to operate in the event of death regardless of whether a death certificate or probate have been granted.
- Likewise when a person loses mental capacity (as with Alzheimer’s) that person will need to be replaced as the trustee of the fund if they were individuals but with a company the Constitution can immediately have a mechanism which allows the person holding the Enduring Power of Attorney to be appointed as a replacement director, resigning the incapacitated director at the same time.
- If under the new Administrative penalties rules a fine/penalty is made in relation to self managed superannuation fund that has individual trustees then each of them will be fined in their personal capacity while if it is a Corporate Trustee then only the one fine amount is payable. This means that if you have 2 individual trustee then you may pay double the fine of a fund with a corporate trustee and remember the fine is personally payable and not allowed to be reimbursed by the fund.
- Guaranteed compliance with SIS regulation 4.09A(2)(a)? It provides:A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively: … (a) that are held by the trustee personally …As you will appreciate, it is easy for this regulation to be contravened where an SMSF has individual trustees (eg, if an individual trustee mixes their own assets with those of the SMSF). If however, you have taken our advice and the SMSF has a corporate trustee where the corporate trustee’s sole function is to act as trustee of the SMSF, then regulation 4.09A(2)(a) becomes almost impossible to contravene! This is because the trustee is unable to mix fund assets with its personal assets as it’s unlikely to have any personal assets.
Therefore an SMSF that has a sole purpose corporate trustee is almost always guaranteed to comply with these rules
For further information on the issues raised in this blog please contact us at our Castle Hill or Windsor office or send an email.
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, put on your Facebook page etc. to make sure we get the news out there to those setting up new funds.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Image courtesy of Stuart Miles at FreeDigitalPhotos.net
The SMSF Coach 
Attorney Online
/ May 31, 2016Good information. Lucky me I recently found your site by accident (stumbleupon).
I have book marked it for later!
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tedfirkin
/ January 15, 2015Good on you Liam, great advise. Thanks.
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Ted Jackson
/ January 15, 2015Thanks for the excellent advise Liam.
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Malcolm
/ June 13, 2013This is excellent!
I have a question that perhaps others would also be interested in hearing your thoughts on – what are the advantages / disadvantages of having one SMSF for my wife and I compared with one SMSF each? Particularly I suppose in the event one of us dies.
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The SMSF Coach - Liam Shorte
/ June 13, 2013Hi Malcolm, It depends on what you are trying to achieve.
As you each maintain separate accounts in an SMSF your individual balances are always retained but the money is just pooled for investment purposes.By having 2 separate SMSFs you would end up with 2 sets of fees and if one of you died then the surviving spouse would end up with 2 funds to run.
You also have the ability within one SMSF to have segregated investment portfolios that you can each manage separately if you wish. For example if you had very different risk tolerances and one wanted only to be invested in conservative investments.
You can also decide as an individual via a Binding Death Nomination who you want to receive your benefits in the event of death. If you use a Corporate Trustee then the remaining spouse can continue to manage the fund as Sole Director so I cannot see a good reason to have separate SMSF’s unless you want to keep your financial affairs totally separate.
One such case would be if you feel the marriage was not strong and the chance of a breakdown was high and wanted to avoid the future hassle of moving one person out of the fund and the consequent negotiations and paperwork involved.
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Michael Spinks
/ August 27, 2012Excellent article Liam.
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