When people set up a self-managed superannuation fund, one of the decisions they have to make is whether to act as individual trustees or set up a company as trustee.
In the past people have tended to opt for individual trustees. In 2010, the Cooper Review of the Superannuation System noted this trend and criticised it as a poor choice.
Things have changed. In a recent report on the SMSF sector, the Australian Taxation Office reported that 57 per cent of SMSFs have corporate trustees.
The ATO did not provide any explanation for this shift but part of it can be explained by a change to the ATO’s data collection process. It said it used “a more reliable data set to determine the SMSF trustee structure, resulting in significant changes to previous trustee structure data.”
Still, the question remains for anyone setting up an SMSF: individual or corporate trustee?
SMSFs are trust entities, just like bigger super funds, which means they must be administered by trustees.
The Cooper Review panel said the advantages of the corporate trustee structure include perpetual succession, administrative efficiency and reduced risk of accidental intermingling of SMSF assets with personal assets.
Graeme Colley, executive manager, SMSF technical and private wealth, at SuperConcepts, agrees: “With individual trustees there can be confusion about whether the individual or the fund owns assets. The problem arises if records and minutes are not kept properly.
“This becomes an issue when there is a divorce and the parties are trying to divide assets, or an insolvency, where creditors are trying to work out what assets they are entitled to.”
HLB Mann Judd partner Michael Hutton says the firm recommends the corporate trustee approach to its clients. He says there are a number of advantages.
“Administratively it is more efficient. The rule with self-managed super is that all members must be trustees or directors of the trustee company. If you want to add a member to the fund it is a simple process to add a director to the trustee company.
“In a fund with individual trustees you have to change the ownership details on investment documents and bank accounts. It is a lot of extra work.”
Hutton says estate planning is simpler. If the fund has two members and one dies, a replacement trustee must be found for the fund to remain valid (an SMSF with individual trustees must have a minimum of two trustees). If the corporate trustee has two directors and one dies the trustee can continue without the need to obtain an additional director.
Hutton says another advantage is that lenders prefer to deal with a corporate trustee when they are arranging a loan for a self-managed fund.