Corporate Trustee vs Individual Trustees – Getting it Right

SMSFs don’t stay the same forever.  Members might die, new members (e.g. children) might join, the original members might divorce or one or both of the members might be diagnosed with dementia or have an accident that affects their mental capacity and leaves them unable to be a trustee.

When a fund has a company as trustee the change is simple (just some paperwork to lodge) and can be managed by the remaining directors.

Where the trustees are individuals, it’s far harder – the legal names on all of the fund’s investments have to change to the new group of individuals.  Some investments actually have to close as they can’t accommodate a change in name (E.G. bank accounts) and sometimes there are legal processes to go through which delay the changes and in the extreme, may make it difficult for you to access some of your fund’s assets for a time.

A fund with only one member can have a trustee that is a company with a single director. 

But, a single member fund with individual trustees has to have at least two trustees. 

That means that if you want an SMSF on your own and have complete control you must have a corporate trustee.

A fund with five or six members may not be able to have individual trustees in some states. This is because some states only allow up to four people to be trustees of a trust (and remember, a super fund is a special type of trust).

One of the very important legal rules in SMSFs is that the fund’s assets have to be kept completely separate from the members’ own assets.

This is really easy to do and to prove to auditors and the Tax Office when there is a completely separate legal owner – a company trustee.

If the fund owns a property, for example, then just like any other property owner the trustees of the fund can be held liable for accidents on their property.

If the trustee is a company, then your personal liability is generally limited to the assets held in the SMSF.  Assets that you own outside the fund are protected.

That same protection doesn’t apply to SMSFs with individual trustees.

Trustees must formulate, regularly review and implement an investment strategy that has regard to the whole of the circumstances of the fund.

Now is a great time to review your current investment strategy to ensure the SMSFs investments are in line with the investment strategy. Where this is not the case, the strategy must be updated.

Changes in investments, members changing from accumulation to pension and economic changes all can lead to a change of investment strategy.

Companies are considered to have an infinite lifespan, so in the event of the death the fund continues in the event of a member’s death – allowing for the easy payout of a members benefits as a lump sum or death benefit pension.

With individual trustees however, the trustee relationship ceases upon death and timely action is required in order to ensure the trustee/member rules are adhered to.

Individual trustees will work of course, however an appropriate succession plan must have been put in place to mitigate any contingencies. This is on top of the considerable paperwork that is usually associated with administering a person’s estate and obtaining probate of their will.

A company offers greater flexibility for estate planning and avoids extra administrative work and costs at a difficult time.

It is more expensive to have a company as trustee of your SMSF. There is a one off set up cost to establish a company (at time of publishing $1,100) and then the company has to pay an annual fee to ASIC.

It’s worth noting that the annual fee is quite low ($63 for the 2024 year) if the company is set up as a “special purpose” company. This is a type of company that is only allowed to be the trustee of a super fund – it can’t do anything else like run a business, be the trustee of a family trust etc.

If you would like to discuss how to change from individual trustee to corporate trustee please contact us.