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Thinking about setting up an SMSF? Or do you already have an SMSF with an individual trustee structure? If so, now might be the time to consider adopting a corporate trustee structure for your fund.
With over 60% of all SMSFs having a corporate trustee structure, there are many benefits in setting up a company to be the trustee of your SMSF.
For background, each member of an SMSF is required to be a trustee of the fund. Alternatively, you can choose a corporate trustee model (ie, a company to act as the trustee of the fund), which means each SMSF member must also be a director of the trustee company.
Benefits of corporate trustee structure
– Greater asset and trustee protection – as companies are subject to limited liability, a corporate trustee will provide improved protection for the directors where a party sues the corporate trustee for damages. For example, if a SMSF owns a property and a tradesperson suffers an accident on the property, the trustees can be sued and held liable for accidents on their property. However if the trustee is a company, your personal liability is generally limited to the assets held in the SMSF (rather than your entire wealth). This means assets that you own outside of your SMSF are protected. That same protection does not apply to SMSFs with individual trustees. Thus, individuals acting personally as trustees of an SMSF are jointly and severally liable for any actions taken against their SMSF.
– Continuous succession – a company has an indefinite lifespan as it does not die. This means a corporate trustee can ensure control of an SMSF remains certain following the death or mental or physical incapacity of a member.
– Administrative efficiencies – when changes occur to the membership of the fund, eg, new members join the fund, or members die or become incapacitated which affects their mental capacity and leaves them unable to be a trustee, or members get divorced/separate and one member wants to leave the fund, etc, the corporate trustee does not change as a result. All that is required is for the member to cease to be a director of the corporate trustee. Thus, when a SMSF has a corporate trustee, the change is relatively simple and can be managed by the remaining directors. By contrast, if the trustees are individuals, it’s much harder as the legal names on all of the investments have to change to the new individuals/members.
– Sole member SMSF – having a corporate trustee allows an SMSF to have one individual as both the sole member and the sole director. Conversely, single member funds with an individual trustee structure cannot have just one individual trustee (other than under certain circumstances). Thus, a single member fund with individual trustees must have at least two trustees. This means you will need a corporate trustee if you want your own SMSF with yourself as sole member/director of the fund.
– Six member SMSF – the case for a corporate trustee is arguably made even stronger if you wish to increase the membership of your SMSF to six members. There are many reasons for this, but one key reason is that the Trustee Acts of most Australian States and Territories still only allow a maximum of four individual trustees for SMSFs. So if you want to take advantage of the increased membership in your fund, you will need to have a corporate trustee (rather than individual trustees) in order to satisfy the trustee limit in the relevant Australian State or Territory legislation.
– Complete separation of SMSF and personal assets – the super rules require that an SMSF’s assets must be kept completely separate from the members’ own assets. This requirement is easy to achieve and prove to auditors and the ATO when there is a completely separate legal owner, being the corporate trustee.
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