SMSF Technical Education & Strategies

The Practical advantages of a SMSF corporate trustee

by Daniel Butler & Nathan Papson
DBA Lawyers

The report “A Statistical Summary of Self-managed Superannuation Funds” released as part of the Cooper Review in April 2010 disclosed that over 70% of SMSFs have individual trustees. Further, the report revealed that in recent years nearly 90% of SMSFs have been established without a corporate trustee.

These statistics start ringing alarm bells considering the great advantages that flow from having a corporate trustee. The high rate of SMSFs with individual trustees is probably due to the perception that individual trustees are cheaper than corporate trustees. However, we believe that individual trustees can prove more expensive in the longer- term.

Liability advantage

Many SMSF trustees overlook the potential liabilities that may arise in relation to their role. DBA is aware, for instance, of an SMSF with individual trustees that invested in a property development that suffered a number of problems that has the potential to not only wipe out their entire super savings but also result in claims against the trustee’s personal assets.

The above case highlights that personal liability can easily inflict individual trustees and also highlights the attraction of corporate trustees. A corporate trustee will provide individuals associated with the fund with the peace of mind that relates to limited liability protection.

Estate Planning

Another saving of corporate trustees relates to estate planning. Smoother succession planning can be put in place so that a successor director can more readily step in for a director who dies or loses capacity, eg, who suffers a coma after an accident. Otherwise, the interests of that person may be entirely in the hands of the other director (who may be the second spouse).

In comparison, costly paperwork is required to change individual trustees upon the death or loss of capacity of an individual trustee. This is on top of the considerable paperwork that is usually associated with administering a person’s estate and obtaining probate of their will, etc.

Administrative Efficiency

A corporate trustee also gives single member funds the flexibility to be controlled by one individual who can be the same sole director/shareholder. In comparison, a single member fund with individual trustees still requires two individual trustees.

Corporate trustees also provide an SMSF with other administrative savings. For example, if mum and dad were individual trustees and wanted to add (or subtract) a child as a member of their fund, they would generally require a deed of change of trustee and would also need to transfer all fund assets into the joint names of the three individual trustees.

If they instead had a corporate trustee of their SMSF, they would only be required to add (or subtract) their child as a director. Naturally, a corporate trustee allows for a much more simpler and efficient process.

Conclusion

Corporate trustees are recommended as a better and more efficient option. Moreover, a sole purpose corporate trustee is preferred as this overcomes the risks that may relate to the company’s other activities and obtains the lower annual Australian Securities and Investment Commission fee of $41 (compared to $218 pa for an ordinary company).

Note that we beleive a key feature of a good SMSF trustee company constitution is that there are in built SMSF succession provisions. These features allow directors of the corporate trustee to take advantage of appointing a successor director to step in on death or incapacity to protect that person’s interests.

Daniel Butler is Managing Director of DBA Lawyers. He is recognised as one of Australia’s leading SMSF lawyers, and is well known in the industry as being an educator and presenter of the highest quality on SMSF issues. He is also a tax lawyer and has worked predominantly in the fields of tax and superannuation over the past 27 years. Daniel is a regular seminar presenter on tax and superannuation topics to industry professionals, and has published extensively in these areas. He also has an MBA from Melbourne University. For more info on DBA Lawyers , CLICK HERE.

Nathan Papson (B.com LLB DipLang(Chinese) (Monash) is a lawyer at leading SMSF law firm DBA Lawyers. Prior to working for DBA Lawyers, Nathan worked as a tax analyst for a big 4 accounting firm. Nathan has worked extensively in the field of taxation and superannuation. He is currently studying a Masters of Law at the University of Melbourne.

This article contains general information only and is no substitute for expert advice. Further, Daniel Butler & DBA Lawyers is not licensed under the Corporations Act 2001 (Cth) to give financial product advice. We therefore disclaim all liability howsoever arising from reliance onany information herein unless you are a client of DBA that has specifically requested our advice.