Michelle Bromley CFP®, Director & Private Client Adviser – Strategy and Advice
In the realm of wealth planning, a self-managed superannuation fund (SMSF) is a powerful tool, granting individuals autonomy over investment of their retirement savings and providing strategic planning opportunities not available in larger super funds. A critical decision when setting up an SMSF is choosing between a corporate trustee and individual trustees. While the simplicity of individual trustees may seem appealing, a corporate trustee offers numerous advantages.
In this article, we will explore the reasons why a corporate trustee is superior to individual trustees for managing your self-managed superannuation fund.
- Single member funds
- Smoother succession
- Administrative efficiency
- Segregation of assets and asset protection
- Limiting administrative penalties
Single member funds
Generally, all members of an SMSF must be trustees or the directors of a corporate trustee. However, single member SMSFs must have at least two individual trustees or else have a corporate trustee where the member is sole director, or one of only two directors.
Should you choose to have another individual involved in your SMSF, that person will have equal powers and the ability to impact decision making in relation to your benefits.
Being the sole director of a corporate trustee can provide you with full control over your super, especially if you do not want, or have available, another suitable individual to aid in decision making.
Smoother succession & administrative efficiency
SMSFs face several challenges to smooth operation of the fund where membership changes, or in the case that a Trustee loses capacity or passes away.
A corporate trustee has an indefinite lifespan and provides continuity of asset ownership, remaining in place with the directorship merely updated to add or remove individuals as needed.
While paperwork is still required to update account signatories, this is much less onerous than the requirement to obtain an amending Trust Deed and change the name of asset registration under an individual trustee arrangement.
Segregation of assets & asset protection
The assets of an SMSF must be kept separate from the personal and business assets of the funds’ members – failure to do so can result in significant penalties.
Establishing a special purpose company which undertakes no activities other than to act as corporate trustee provides clear and separate asset ownership.
A company has limited liability, which ensures that in the case litigation is bought against the SMSF claims are limited to the assets held by the company and the member’s personal assets are not at risk.
Limiting administrative penalties
Though most Trustees don’t intend to contravene the superannuation laws, failure to uphold Trustee responsibilities may result in penalties being imposed.
SMSFs must be maintained for the sole purpose of providing retirement benefits to members or death benefits to their dependants. Making an unauthorised withdrawal of benefits that must be preserved within the SMSF until retirement could result in a fine of up to 60 penalty units per breach per trustee, with one penalty unit costing $313.
The cost of a single breach is $18,780 per trustee; an SMSF with 6 individual trustees could pay $112,680 in the event of a serious breach.
As the penalty is applied per breach, and more than one breach may be found, the cost of non-compliance can be significant for SMSFs with individual trustees.
Conclusion
While having individual trustees for your self-managed superannuation fund may be enticing for their initial ease of setup, choosing a corporate trustee offers numerous long-term benefits. From providing enhanced asset protection to simplifying administration and compliance, the advantages of a corporate trustee can outweigh those of individual trustees. The perpetual existence of the corporate entity ensures seamless succession planning, while offering asset protection benefits and full control for sole member funds. Opting for a corporate trustee is a prudent and strategic choice for anyone seeking to optimise the management of their SMSF.
