Why Self Managed Super Funds Should Have A Corporate Trustee


Why I believe it is essential to have a company as trustee and the options to have individual trustees is short-sighted  Time to Decide

The over-riding benefits of having a corporate trustee, rather than individual trustees, are summarised in the following comparison table:

Corporate Trustee

Individual Trustees

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!

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.)

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.

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.

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

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

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

  1. 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.
  2. 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.
  3. 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.
  4. 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™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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 Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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

Think twice before cancelling insurances as you get older.


Do you know that the average person cancels their personal insurance about 1-2 years before an claimable illness strikes! The average age a person discontinues one or more of three types of living insurance policies – cover for disability, critical illness/trauma and income protection – is 45 years yet the average age for a claim is 46.5 years. (source TAL)

As mentioned in a previous blog the SMSF regulations now require Self Managed Superannuation Fund Trustees to consider Insurance as part of the SMSF Investment Strategy . TheRisk Management following applies to everyone regardless of the type of investor you are or the structure you use to save for retirement.

I see many clients in our Castle Hill and Windsor offices in their late 50’s who have cancelled their life and income protection insurances before they have come to see me. Usually they say it is because they have paid off their mortgage and are debt free so they didn’t feel they needed cover any longer.

Their focus now was on expense reduction and saving via salary sacrifice to superannuation and even some after tax contributions from savings.

While it is great to see them focus on saving for retirement and budgeting, what they don’t realise is that in cancelling insurances it is their retirement lifestyle or that of their spouse they are no longer insuring and not just their current needs.

With 5-15 years of focused savings towards a retirement nest egg they can substantially improve their lifestyle after retirement. However those dreams of a happy retirement can all be taken away with a diagnosis of cancer or a stroke that inhibits them working for a prolonged period.

You don’t just find yourself financing time off work and medical expenses but also lose out on the employer super contributions and salary sacrifice as well or worse for a small business owner, you face the expense of a getting someone to cover for you to keep the business afloat.

To realistically assess if you need to maintain your Life, Trauma or Income Protection insurance, you need to think through the worst-case scenario. If you were unable to work for 3 years due to an illness today, how would you and your loved ones cope financially?

  • Would you be able to meet ongoing living expenses like food, clothing, changing the car, pay for private health insurance premiums, etc? (this assumes mortgage paid off)
  • Would you have the liquid funds to cover additional expenses or loss in income (e.g., gap in your medical fees, time off work for your spouse to take care of you,
  • What would happen to your retirement plans and would you be able to save enough money to see the kids through the final college years or fund your retirement comfortably?
  • What if you were actually permanently disabled and they had all the costs of rearranging the home, medical care and transport options for you.

In all honesty, it is always a struggle when you lose your earning capacity. The last thing you need compounding the situation are financial concerns. Insurance helps make sure that you and the people you care about will be provided for financially, even if you’re not around to care for them yourself.

So whether you’re in retail, industry or a Self Managed Super Fund, take a moment to consider how insurance might fit into your retirement plans. We can look at ways to reduce the cover and costs to keep them affordable and provide that protection for you and your family.

If you think you may need to review your Insurances then you can contact us to offer you advice on your options. As well as offering advice on Insurances, Superannuation and SMSF’s our advisers can also offer you help in many other area’s you may be experiencing problems such as:

  • Financial Planning,
  • Tax Planning,
  • Debt Consolidation,
  • Investment Portfolios,
  • Estate Planning,
  • SMSF Trustee queries.

Have you found this blog helpful? Pass it on. Social media buttons beneath the article.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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 Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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.

Self Managed Super Funds must include an Insurance Needs Analysis as part of the fund’s SMSF Investment Strategy.


Amendments to the SIS Regulations in place from August 2012 require trustees of SMSFs by law:

  1.  to consider whether insurance cover should be held by the fund on the lives of the members;
  2. to review that decision as SMSF trustees regularly as part of the review the investment strategy of the fund.

The obligation (which is set out in SIS Reg 4.09(2)(e)) requires the trustees to apply their minds to whether  “for a self managed superannuation fund – whether the trustees of the fund should hold a contract of insurance that provides insurance cover for one or more members of the fund.”

This is a major step up in terms of duties from the old regulations and I believe has been prompted by the June 2010 Super System Review Panel report noting that less than 13% of SMSFs have insurance. Now in reality the major factor to consider is probably that this low figure is a result of most SMSF members being over 55 with higher super balances and low personal debt so the need for any insurance may be negligible.

Insurance protection

Image courtesy of iosphere at FreeDigitalPhotos.net

So what insurance covers are we talking about?  Well it is not simply life insurance, and could include total permanent disability cover and income protection cover that insurers make available via superannuation.

This is not an obligation on the fund to take out each of these insurance covers – the trustees must merely consider the issue.

To prove for the purpose of the annual audit that the trustees have considered the issue, the trustees will have to prepare minutes/resolutions which:

  • acknowledges that the trustees are aware of the obligation to consider insurance cover;
  • shows that the trustees have considered the need for insurance cover for each of the members of the fund;
  • documents that they have implemented cover where possible to meet those needs of the individual members and of the fund itself (in the case of LRBA) or
  • acknowledges that the trustees have determined that insurance is or is not required for a particular member(s)

As is the case with many clients that I take care of the trustees may conclude that no insurance cover is required in respect of a particular member for a variety of reasons such as:

  • when the member has indicated that they have no need for cover as their debts are low and needs are fully funded;
  • the member has sufficient insurance cover in other super funds (we often keep employer or industry funds open to avail of lower group rates);
  • the member has other insurance arrangements outside of the super;
  • that due to illness or injury the cost of premium is too high for the cover provided;
  • when the member has actually been declined for cover due to occupation or pre-existing conditions;
  • that the member does not believe in insurance or is unwilling to pay the cost of the premium.

So how far do you go as a Trustee in documenting your reasons for their decision? Is a full-blown explanation required or a simple statement that they have considered the issue and have come to a set conclusion either way for each member?

Whilst going into detail may sound the correct option to show the trustees have fully discharged their duty, those reasons set down in writing could be questioned later and the process found negligent which may expose the trustees to claims that they have breached their duties.  You may think that an SMSF most often consisting of mum and dad and maybe a few children in a family group like this may be unlikely to end in conflict but potential Beneficiaries of Estates, with the advantage of perfect hindsight, may seek redress to put pressure on trustees to consider their claims.

A possible solution may be for the trustees to discharge their duty by requesting from each member to indicate whether the member wishes to have cover for any or all risks identified in the fund.  If a member said that they do not wish to have or do not need, and will not submit to any underwriting requirements, then the trustees would be in a position to claim that they either have discharged their duty to the member.

As the new requirement has been attached to the investment strategy operating standard of SIS Reg 4.09, it seems that the trustees will also have to reconsider the issue of insurance each time the investment strategy is reviewed and on the occurrence of any significant change to the circumstances of a member or the fund such as a large contribution or withdrawal.

It is time to decide how you will comply with the new rules so please contact us if you need assistance or want to explore your options. Our risk specialists can review existing insurances and provide quotes on a range of covers from suitable insurance companies.

Want to do some preliminary investigations yourself? Why not try this decent Insurance Needs Calculator by clicking here, and then make an appointment to discuss the results with us.

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 Trustees are aware of the changes.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

SMSF Specialist Adviser 

 Follow SMSFCoach on Twitter Liam Shorte on Linkedin NextGen Wealth on Facebook   

Verante Financial Planning

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 Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

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.

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