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Should I Use a Corporate Trustee or Individual Trustees for My SMSF?

What is a corporate trustee of an SMSF diagram

A Self Managed Super Fund (SMSF) can have either individual people or a company as its trustee. The trustee, responsible for managing the trust’s assets, plays a crucial role in the SMSF’s management and continuity. Given the complexity of SMSFs, involving trusts, superannuation, estate planning, and investing, selecting the right trustee structure is vital.

What is the difference between an individual and a corporate trustee for an SMSF?

An individual trustee does not necessarily mean a single person, but rather two or more individuals managing the SMSF in their names. In contrast, a corporate trustee is a company appointed to manage the SMSF. This corporate structure offers a buffer between individuals and the SMSF.

You and/or your partner can direct the company (corporate trustee), ensuring you retain control of the SMSF. The idea behind the corporate trustee is that it’s simpler to change the directors of the corporate trustee than the individual trustees of an SMSF, in the case of a death, divorce, or other change to the SMSF.

Another way to look at it is that a corporate trustee insulates the SMSF from changes to the directors’ life circumstances.

What are the disadvantages of individual trustees?

Individual trustees pose several drawbacks to an SMSF. Firstly, they increase operational costs, as updating asset titles with each trustee change can be time-consuming and expensive.

State governments and financial institutions may levy fees for changing asset titles, adding to the financial burden. Additionally, individual trustees expose personal assets to litigation risks, unlike corporate trustees, which shield personal assets from legal claims against the SMSF.

Furthermore, if the individual trustee option is chosen, then rules require at least 2 trustees to be appointed.

Estate planning also presents challenges, as the death of a trustee can necessitate SMSF cessation without a robust plan in place. This is particularly evident if the SMSF has a liquidity problem; SMSFs who have all or a large amount of their assets in one property are particularly susceptible to this issue.

Penalties for non-compliance are per trustee, making individual trustee SMSFs vulnerable to higher fines.

What are the disadvantages of corporate trustees?

While corporate trustees entail higher initial setup fees due to the company structure, the upfront cost is worth it as they can save many thousands in fees in case of compliance or inheritance issues.

Ongoing fees for a trustee company are typically lower than those for a standard trading company. Despite claims of faster setup with individual trustees, this advantage is outweighed by the bureaucratic complexities that arise with changes to individual trustee structures.

What should you use?

Everyone’s situation is different, however, corporate trustees usually prove superior, offering flexibility, efficiency, and risk mitigation. Seeking professional advice when establishing an SMSF is crucial due to the range of pitfalls, especially concerning trustee selection.

If you’re looking to establish an SMSF we highly recommend booking a complimentary chat with Luke, our director and SMSF Specialist Advisor.

Secure your financial future today!