The Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act) has strict rules as to who must act as a trustee of a self-managed superannuation fund (SMSF), but basically this means:
- if you are individual trustees of a SMSF, all members must be trustees of the SMSF
- If you have a corporate trustee of a SMSF, then all members must be directors of it.
The SIS Act also provides that those trusteeship rules will continue to be satisfied if a member’s attorney (under an enduring power of attorney) is appointed as trustee/director in place of the member. This can also assist if you will be overseas and unable to tend to the management of the SMSF for a prolonged period.
Where there is no enduring power of attorney, the member may need to be rolled out of the SMSF or an administrator may need to be appointed by the Court. One consequence of breaking these trusteeship rules can be the ATO removing the SMSF’s complying status and triggering tax at the top marginal tax rate.
There are several important reasons as to why your SMSF should have a corporate trustee. So how can having a company as trustee be of benefit?
Individual trustee dies or becomes incapacitated
When a member who is a SMSF trustee becomes incapacitated or dies, the trustee/s will need to change.
On the death or incapacity of a member, typically the deceased/incapacitated trustee will be removed and replaced with their ‘legal personal representative’ (LPR). An example of an LPR is an attorney appointed an enduring power of attorney or executor under a Will.
Another complication is that when a member/individual trustee dies and their death benefit commences to be paid from the SMSF, the trustee/s will need to change again (as the LPR cannot continue to act in place of the deceased member).
Every change of trustee will need to be reflected on all assets of the SMSF (including updating the title to any real property), causing delay and expense to the SMSF and family, at a time when the family would rather be focused on assisting the debilitated member of grieving their death.
Death or incapacity of a director of a corporate trustee
Where there is only one member remaining in the SMSF (due to death or rollout of a member), the remaining member will not have to find a second person to act as co-director of the trustee (single member SMSFs are required to have 2 trustees if the trustees are individuals). Title to the SMSF assets does not need to be changed, although ASIC’s register will.
Reduced ASIC fees
The expense of registering and maintaining a company is the most common deterrent to SMSFs using a corporate trustee however, unlike being a trustee of a family, discretionary or unit trust, where a company only acts as trustee of a SMSF, it is a ‘special purpose company’ (meaning it will receive the benefit of reduced ASIC annual return fees.
Having a company act as trustee can also offer some litigation exposure protection and may assist with borrowing under a Limited Recourse Borrowing Arrangement as some lenders require it
Overall, having a corporate trustee can be a more efficient, cost-effective and administratively simpler option for your SMSF and can be an integral part of your overall estate plan.
For further information on estate planning, corporate, superannuation or succession issues, please contact McKillop Legal on (02) 9521 2455 or email email@example.com
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.