Choosing A Trustee For Your SMSF

Choosing a trustee structure for your self-managed superannuation fund (SMSF) is an important decision. You can choose to have either a corporate trustee or individual trustees.

To qualify as an SMSF, the fund must have fewer than five members and, subject to certain exceptions, all members must be either individual trustees or directors of the company that acts as the corporate trustee.

However, where the fund has a single member, it cannot have a single individual trustee. Instead, the trustee can either be:

• the member and one other person who is not an employee of the member (unless they are related); or
• a sole director company.

Important: No remuneration can be received for the duties of an SMSF trustee.

Bentleys agrees with the ATO and recommends that SMSFs are better served by having a corporate trustee in place. While a corporate trustee may involve an additional cost to establish and must lodge an annual return with ASIC, there are on-going benefits that we believe outweigh the additional costs.

Advantages of a corporate trustee

1. Ease of administration in a change of members

As all assets of an SMSF must be held in the name of the trustees, a change in membership requires that all assets change their ownership. In the case of individual trustees, this means that every bank account, listed share, property and other assets needs to reflect the change in trustee.

A change of individual trustees or directors of a corporate trustee will occur if:

• members join or leave the SMSF, for example adding children as members or in the event of divorce;
• a member dies;
• a member loses capacity and their legal personal representative takes over the role or trustee or director; or
• a member moves overseas for an extended period and a person holding an enduring power of attorney assumes the role of trustee or director.

2. Maintaining control over the fund

A single member fund can use a corporate trustee with a single director, thus maintaining control over the fund. If two individual trustees are required, one who is not a member of the fund, that person still has trustee responsibilities and is involved in making decisions for the fund.

3. Prevention of costly mistakes

For some trustees of SMSFs, having a corporate trustee will save them from mistake. This can occur when the SMSF’s bank account in the name of Mr & Mrs X is incorrectly used to pay for personal items. A bank account in the name of XYZ Pty Ltd is less likely to be used for personal items.

4. Easier administration of the SMSF following the death of a member

Timely action needs to be taken on death of a member to ensure the member/trustee rules are met, e.g., if one member remains, it is necessary to appoint an additional trustee to meet the compliance requirements. This is not normally a time when the complying status of their super fund is uppermost in their minds but it is vitally important to comply with the legislation in this regard.

A company has an existence independent of its directors and shareholders and thus continues to be trustee of the fund following the death of a member.

5. Limited liability

Companies enjoy limited liability, thus a corporate trustee receives an additional layer of protection compared with individual trustees if the trustees were sued.

Trustee responsibilities

SMSF trustees are required to satisfy a range of legal obligations and responsibilities in accordance with the legislation. Failure to act in accordance with the rules and responsibilities could result in penalties and loss of the SMSF’s tax concessions.

1. General responsibilities

• Act honestly in all matters affecting the fund.
• Exercise the same degree of care and diligence as an ordinary prudent person in managing the fund.
• Act in the best interests of all beneficiaries of the fund.
• Keep fund assets separate from other assets (i.e. the trustees’ personal assets).
• Retain control over the fund.
• Develop and implement an investment strategy.
• Not enter any contracts, or do anything else, that would prevent the trustee from properly performing or exercising their functions and powers.
• Allow members to access information about the fund and their benefits.

2. Meet the sole purpose test

The sole purpose test requires that the fund be established for the benefit of members in their retirement. Any use of assets or benefit gained prior to this time is seen as a beach of the sole purpose test.

3. Set an investment strategy and review it regularly

The trustee is required to set investment objectives and record it in an investment strategy. The strategy must be reviewed regularly. This responsibility exists to ensure that investment decisions are carefully considered and are appropriate for the member’s circumstances. The trustees must also consider whether insurance is required for the members of the fund.

4. Comply with investment restrictions

The investment restrictions in the legislation appear onerous, but they do not prescribe the type of investment that an SMSF can make. Restrictions are placed on certain instances of borrowing, lending to members and other transactions with related parties, to name a few.

5. Paying benefits in accordance with preservation rules

Superannuation savings are to be used in retirement and other permitted purposes. The trustees must ensure that member payments are only made when permitted under the legislation.

6. Ongoing administration

The ongoing administration requirements include the annual SMSF tax return, audit and financial statements, recording member benefits, evaluation of assets. The trustee is able to appoint an accountant or administrator to perform these tasks, however the trustees remain responsible for ensuring that the fund remains compliant with the relevant legislation.

Your Money, Your Control. Click here for your guide to understanding SMSFs 

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Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.