So you have decided to take initiative and manage your self-managed super fund (SMSFs). You are given the option of choosing between two structures that may potentially affect how much control you can have over your retirement funds. First, an individual trustee. Second, a corporate trustee. It is important that you learn about these structures, in order to determine which one better suits your needs and the needs of other members of your fund. The trustee structure you choose will affect how your fund is administered, as well as the costs of setting up and running your fund. In this guide we will be focusing primarily on a corporate trustee structure.
If you’re interested in learning about an individual trustee structure, you can check out our previous guide What You Need To Know About An Individual Trustee Structure.
For greater legal guidance get in touch with a business lawyer to find out which trustee structure is appropriate for your SMSF.
What Is A Self-Managed Super Fund?
Basically, a SMSF is a private superannuation fund that is regulated by the Australian Taxation Office (ATO). It is a legal tax structure with the purpose of providing for your retirement. You can manage this superannuation fund by yourself, and/or appoint up to four members that are trustees (or directors) who are responsible for making decisions about the fund. These members can be a group of individuals or a company.
In order to qualify as an SMSF, you are required to appoint either a group of individuals or a company to act as the trustee of your fund.
What Is A Corporate Trustee?
A corporate trustee is a structure that has a company as the trustee, and the members of the trust are called directors. Like an individual trustee structure, the limit of four members applies. Each member of the fund must be a director of the company, and each director of the corporate trustee must be a member of the fund. Also, members are restricted from being an employee of another member unless they are relatives. A distinguishing feature of a corporate trustee structure is the assets of the fund must be registered in the name of the company that has been set up to act as a corporate trustee. A corporate trustee structure is recommended if you:
- Want to be the sole director and sole member of the fund.
- Seeking reduced liability.
- Want to change members within your fund.
There are many benefits to using a corporate trustee as a structure:
- Your assets have greater protection whereas the personal assets of individual trustees are at risk.
- Recording and registering ownership of assets is simpler, particularly if you want to change membership in future. Once a person starts or stops being a member of the SMSF, they cease to be a director of the corporate trustee. The title to the assets and the name on the ownership documents remains unchanged. In contrast, if an individual trustee was selected, changes will need to be notified immediately.
- Unlike an individual trustee, a corporate trustee reduces the risk of personal assets being mixed with fund assets. The trust’s assets and personal assets are held under different names.
- The company is a separate legal entity, this means it has limited liability protection if the trustee is sued for damages. As director of a corporate trustee, your personal liability is limited to the assets held in the fund. Thus, there is more security and it is less likely members will be subject to liability claims.
- If superannuation laws are breached, administrative penalties may be imposed on each trustee. This means, each trustee is liable for the penalties. A corporate trustee is advantageous if non-compliance occurs.
- A corporate trustee offers continuous succession. This means, if a member of the trust dies, the company will continue to operate regardless of death or incapacity of a member.
There are some disadvantages to using a corporate trustee:
- Compared to an individual trustee structure, a corporate trustee can be more expensive to set up and maintain. ASIC normally charges a fee if a company is registering for the first time, and an annual review fee. In addition, there is ongoing annual cost in preparing the company annual review.
- If laws are breached, penalties are imposed onto the corporate trustee. For example, if a corporate trustee fails to prepare financial accounts and statements.
There are many advantages and disadvantages to a corporate trustee structure. Whatever decision you make can impact how your fund is managed and maintained. If you are struggling with deciding which structure suits your needs, then it is best to consult with LawPath’s experienced business lawyers.
Unsure where to start? Contact a LawPath consultant on 1800 529 728 to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 700+ expert lawyers or to get answers to your legal questions.