Often the reason for Self-Managed Super Funds (SMSF) not having a Corporate Trustee is the cost of setting up a company. It is the company which becomes the legal entity that acts as the Trustee of the SMSF. Typically two members of the fund become the directors of the trustee company. The company may have just one director or more. However when you consider the advantages and the life span of an SMSF (which can be many years and inter-generational in some cases), it would seem that the costs are fairly insignificant when weighed up again the advantages (particular on an ongoing basis). In short the advantages of a Corporate Trustee can be best summarised as:

Liability issues — companies have the benefit of limited liability. Therefore, if a corporate trustee suffers any liability, the individual directors will not suffer personal liability (other than in exceptional circumstances). On the other hand, an individual who acts as trustee exposes their personal assets if they incur any liability as trustee of an SMSF or other trust: if the individual’s right of indemnity against the SMSF is not sufficient to discharge the liability, then the individual is still liable for the shortfall.

Simpler succession and control of a trust on death of an individual — a company continues to function even after the death of one of its directors, therefore, the control of a SMSF or other trust can continue even after the death of an individual SMSF member/director.

Assets are kept separate — it is easier for a corporate trustee to ensure that trust assets are kept separate from the personal assets of SMSF members.

Administrative efficiency for SMSFs — if a new member is introduced to an SMSF, then, generally they must become a trustee of the fund. If the relevant SMSF has a corporate trustee, then a new director needs to be appointed to the company and notified to ASIC; However with an with an individual trustee, a deed of appointment needs to executed and, in most cases, all trust assets need to be transferred into the new trustee’s name (or jointly with other trustees). This can cause major administrative hassles if the trust assets consist of real estate and shares. The hassles do not apply to a corporate trustee as the SMSF assets are usually held in the company name, and the company remains as trustee.

Death of Member – If a member dies there can be lot of hazel around appointing a legal representative to the fund. With individual trustees, all the assets of the fund would need to be updated which is made all the more difficult as it is generally a stressful time for the family.

Lender requirements for limited recourse borrowing arrangements — bank lenders generally insist upon (or at least prefer) the SMSF having a corporate trustee.

Note that the cost for an annual review for a Corporate trustee) that’s sole purpose is to act as Trustee for an SMSF) is $45 per annum which is paid to ASIC (Australian and Securities Investments Commission). If your SMSF has one or more individual trustees Falconer Advisers can assist you with replacing them with a Corporate Trustee.

We strongly recommend that as the Trustee(s) of your fund that you obtain financial advice before doing this, because changing the ownership of the funds assets to a corporate trustee may require a substantial amount of change-over administration. Changing the ownership of the funds assets will have tax implications that may be significant or even substantial. The tax implications and administrative burden need to be weighed against the advantages and this will require an examination of your funds circumstances.

To find out more about Corporate Trustees, managing SMSF’s or investment opportunities for your SMSF please call Falconer Advisers on 03 6234 2233 or email glynn@falconeradvisers.com.au.

Falconer Advisers Pty Ltd are registered with the Tax Practitioners’ Board as registered tax (financial) advisers under the Tax Agent Services Act 2009 (“TASA”). However, we are not a registered tax agent and the nature of the tax services that we are authorised to provide is limited under TASA. As such, we only provide tax services directly related to the nature of the financial planning advice provided to you. The extent and detail of any tax service provided is restricted to those matters agreed in our engagement and we have not considered any other tax matters. Where tax implications are discussed they are incidental to our recommendations and only included to help you decide whether to implement our advice by illustrating how it is likely to place you in a better position.