Posted by: Kylie Wilson
Why it is essential to have a company as trustee (not individuals)
The benefits of having a corporate trustee, rather than individual trustees, can be summarised as follows:
| Corporate Trustee | Individual Trustees |
|---|---|
Continuous succession
A company has an indefinite life span; in other words, it does not die. Therefore, a corporate trustee can make control of an SMSF more certain in the circumstances of the death or incapacity of a member.
| Ceases upon death
If the SMSF has individual trustees, e.g. a mum and dad SMSF, then timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied. (SMSF rules do not allow a sole individual trustee/member SMSF.)
|
Administrative efficiency
When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceased to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to all the assets of the SMSF remains in the name of the corporate trustee.
| Extra and costly paperwork
To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund.
|
Lump sums and pensions
An SMSF with corporate trustee can pay benefits either as pensions or as lump sums.
| Lump sums only payable on commuting pension
The SMSF rules require that a lump sum can only be paid by commuting a pension, which gives rise to extra paperwork.
|
Sole member SMSF
You can have an SMSF where one individual is both the sole member and the sole director.
| Sole Member SMSF
A sole member SMSF must have two individual trustees
|
Greater asset protection
As companies are subject to limited liability, a corporate trustee will provide greater protection for the directors where a party sues the trustee for damages.
| Less asset protection
If an individual trustee suffers any liability, the trustee's personal assets may be exposed
|
Administrative Penalty Regime
Corporate Trustee - one penalty, directors jointly and severally liable
e.g. Breach of subsection 65(1) of SIS Act - $10,200 penalty
| Administrative Penalty Regime
Individual Trustees - one penalty for each trustee
e.g. Breach of subsection 65(1) of SIS Act - 4 trustees - $40,800 total penalty: $10,200 each
|
For further information on the issues raised in this news article please contact our senior expert in this area of law, Kylie Wilson on 07 3234 3102 or email to discuss.
