Australia: Self managed super funds: What is the best structure?

It is very important to make an informed decision when considering whether it is better to have individuals or a company as the trustee of a self managed superannuation fund (SMSF).

ATO statistics show that a large majority of SMSFs opt for individual trustees. This probably has a lot to do with people opting for the quickest and what may seem to be the easiest and cheapest option, however this decision could end up costing you more in the long run.

There are practical issues to consider when deciding on a preferred structure. Let's take a look at some important considerations when deciding which option is right for you:

Cost and efficiency of processes

There are initial establishment costs for a new trustee company (which preferably should be an ASIC special purpose company) and also a small annual ASIC levy associated with the company.

Although you may not have the same initial set up and running costs when individuals are trustees, appointing an individual trustee means that the legal ownership of the assets must change each time there is a change in trustee. This is because when a new member joins an existing fund, that person must either become an individual trustee, or become a director of the company trustee. This may require property and shares to be transferred, trading accounts to be amended, and bank account details to be altered. This is where the complications and unexpected costs of having individual trustees tend to arise.

It is much easier to appoint a person as the director of a company, than it is to make the person an individual trustee of the fund. Appointing a director requires a simple form and notification to ASIC rather than transferring the ownership of all fund assets.

Clarity of ownership & asset protection

The relevant superannuation legislation requires that the assets of the fund must be kept separate from any assets held personally by the trustee. The use of a corporate trustee, with a separate identity, reduces the risk of personal assets becoming intermingled with fund assets.

Regardless of the trustee structure, the responsibilities of those acting in trustee capacities for a superannuation fund (either individually or as a director of a company) are the same. All trustees are liable to members for any losses incurred as a result of a breach of trust. Individual trustees are personally liable.

Given that a corporate trustee company is subject to limited liability, this may provide greater protection of personal assets. However, the protection may be diminished or disappear completely if the directors do not fulfil their duties and responsibilities under the Corporations Act and other legislation. As such, regulators such as ASIC, the ATO and APRA may pursue the directors personally for penalties arising out of the breach of the applicable legislation.

Estate planning flexibility and perpetual succession

A corporate trustee ensures greater flexibility for estate planning as the trustee does not change as a result of the death of a member. Where there are individual trustees, the death of a member requires there to be a change of trustee, and this gives rise to significant administrative costs at an inopportune time.

Unlike people, a company does not die. As such, the death of a member will not impact on the holding of investments within the fund. If individual trustees are adopted, on the death of a member/trustee, legal title to all the assets must be transferred from the deceased member to the continuing members. This can take some time as the deceased member's personal representative will need to be formally appointed to act in the deceased's name.

Clearly there are more than just cost considerations to address when deciding on the trustee structure for your SMSF. It is important to take some time to understand the implications of your decision and make sure you receive the input of your legal and financial advisors so you can make an informed decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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