Corporate Trustee vs Individual Trustees for your SMSF

Corporate Trustee vs Individual Trustees – Why we “very strongly” recommend the use of a Corporate Trustee!!!

We strongly advocate opting for a Corporate Trustee when assessing a Corporate Trustee vs Individual Trustees for any Self-Managed Superannuation Fund (“SMSF”). And here is why …

Advantage of Individual Trustees

The one and only real advantage of Individual Trustees is that the SMSF is cheaper to set up, and in theory marginally cheaper to run each year (generally around $1,100 set up saving, around $250 cheaper per year).
The upfront saving is often enough on its own to convince Clients to choose the Individual Trustees option when establishing their SMSF. However we would argue this is often a false economy as is demonstrated below …

Advantages of a Corporate Trustee

There are quite a few …

• Change to Members – Any time there is a change to the members of the Fund (including death, incapacity, a new member joins, relationship breakdown or just a member leaving for some other valid reason) the legal ownership of the assets needs to change if you have Individual Trustees. This means every share, every bank account, every property, every asset, etc, etc has to have the legal ownership changed.  Any one who has done this knows just how hard and frustrating this can be.  This is as costly, actually in many cases probably more so, both in terms of dollars and time to arrange, than changing the trustee to a Corporate Trustee!  Even if you think it will never happen, we can assure you we see it happen, usually unexpectedly, all the time! Plan for the future, not the now!
  • Remember, Companies do not die (nor generally lose capacity) unlike people! Death of a member causes major hassles if they are an Individual Trustee and risks the tax concessions of the fund. Ditto for incapacity. In the event of relationship breakdown, managing this with Individual Trustees is also much more difficult. Where the SMSF has a Corporate Trustee and something happens to a member, you just remove them as a Director (it is one small set of forms and likley a cost of around $200) and nothing else changes!
  • Admission of new members (ie. spouse or child) is much easier and cheaper with a Corporate Trustee than Individual Trustees.  You just add them as a Director of the Corporate Trustee (again it is one small set of forms and likely a cost of around $200).  If you need to add their name to every asset (as would be required for Individual Trustees) you will probably just decide never to let them join as the paperwork will drown you!
• Members Moving Overseas – If a member moves overseas (ie. young adult children) it is substantially easier to prove the fund is still an Australian super fund (a requirement to retain concessional tax treatment) if a member moves overseas and the Fund has a Corporate Trustee than if you have Individual Trustees. Plan for the future, not the now!
• Borrowing within the Fund – If you ever decide to borrow (ie. to buy a property) within your Fund the bank will (virtually without exception) require a Corporate Trustee. Plan for the future, not the now!
• Single Member Funds – If the fund has only one member, now or in the future (ie. due to death of a member), you will have to appoint someone else (a friend, relative, adviser, etc) to act as Trustee with you if you have Individual Trustees (ie. there must be two Individual Trustees at all times, even if there is only one member). If you have a Corporate Trustee you can be the sole member and sole director without the need to bring other people into your super affairs. Plan for the future, not the now!
• Asset Protection – If the fund went insolvent (granted this is, hopefully, highly unlikely, and if you work closely with us the “team” goal would always be to try to avoid this, but you can never be too careful) having a Corporate Trustee “helps” protect the individuals behind the Fund (the members) from personal liabilities. Plan for the future, not the now!
• Lower Penalties – Under the new penalty regime for SMSF breaches (including inadvertent breaches), there are actually lower penalties for Corporate Trustees than for Individual Trustees . The Corporate Trustee can only be penalised once under the new regime, while Individual Trustees are each separately penalised! Plan for the future, not the now!
• Benefit Flexibility – Funds with Corporate Trustees can pay benefits in either lump sum or pension form. Funds with Individual Trustees must have as their primary purpose the paying of pensions only (arguably they still can pay lump sums, but it is much more problamatic)! Plan for the future, not the now!
• Compliance is easier (and therefore the cost of running the Fund, and in particular the cost of the annual Audit, is potentially substantially cheaper) – One of the key requirements for operating an SMSF is that the Funds assets are maintained separate from those of the members.  This becomes much more difficult, and much more difficult to prove, when assets are held in the same names (ie. the Husband’s and the Wife’s) as their personal assets!  The waters become muddier, it becomes easier to make an (hopefully inadvertent) error.  It becomes harder to prove to the Auditor which asset belongs to the Fund and which belongs to the members personally.  The Auditor has to check more closely and make sure, for sure, the Fund is being run in a complying manner!  While all the above reasons are super valid and super important, this is actually the biggest, most relevant reason on a day to day basis, why we say a Corporate Trustee is a no brainer!

Not just any Corporate Trustee

If proceeding with a Corporate Trustee, we again highly recommend (read “virtually insist”) it must be a fresh, new company, with no skeletons (real, potential or contingent) in the closest! Why for the sake of a few dollars would you put your superannuation savings at risk by using an old company that may, whether you know it or not, have some potential problems that could raise their head in the future!  Plan for the future, not the now!

Can you change the Trustee?

Yes you can change later, but you don’t want to!
It is a total administrative hassle, and will cost both in dollars and time to arrange! We believe the cost to change will eat up the initial saving, probably even if the fund has been running 10 years or more!

Will we let you have Individual Trustees

Of course!
The one advantage of Individual Trustees we mention above, being the immediate and easily measurable and identifiable cost saving, is very attractive to many people.  With that in mind, we will of course always (if slightly reluctantly) agree to Individual Trustees if a particular Client requires it!  At the end of the day we can only ever make our recommendations and then put the final decision in the hands of you our Client.  Oh, and we promise we will never say “we told you so” 🙂

P.S. If you don’t just want to take our word for it, the ATO layout the differences to consider when assessing a Corporate Trustee vs Individual Trustees on their website (if somewhat less colourfully).