Trustee structures

Setting up a Self-Managed Superannuation Fund (SMSF) requires many important decisions to be made, one of which is the choice of trustee structure. The trustee structure determines who is responsible for managing the SMSF’s investments, ensuring that the fund complies with regulations, and overseeing the fund’s overall operations. The two main trustee structures for an SMSF are individual trustees and corporate trustees. In this article, we will discuss the benefits and disadvantages of each trustee structure to help you make an informed decision.

Individual Trustees

Individual trustees are appointed to manage the SMSF’s investments, ensuring that the fund complies with regulations, and overseeing the fund’s overall operations. Each SMSF must have at least two individual trustees or a corporate trustee with at least two directors. The benefits of individual trustees include:

• Cost-effective: Setting up an SMSF with individual trustees is free of charge by iCare Super, which can be attractive for those who want to save on setup costs. With individual trustees, there are no costs associated with setting up a company or registering it with the Australian Securities and Investments Commission (ASIC). Additionally, there are fewer ongoing costs associated with maintaining the SMSF, as there is no need to file annual ASIC reports or pay annual fees to ASIC.

However, there are also some disadvantages to consider, including:

• Limited Borrowing Options: It may be challenging for individual trustees to find a lender who is willing to provide a loan to the SMSF for the purpose of purchasing a property.
• More Administration: Setting up an SMSF with individual trustees requires more paperwork and administration. Each trustee must be appointed individually, and any changes to the trustees require more legal documentation.
• Risk: Individual trustees may be personally liable for any breaches of SMSF regulations. This can be a significant risk, particularly if one of the trustees is not experienced in managing an SMSF.
• Minimum Number of Individual Trustee: It requires at least two individual trustees; therefore, you can not set up an SMSF by yourself.

Corporate Trustees

A corporate trustee is a company that is appointed to manage the SMSF’s investments, ensuring that the fund complies with regulations, and overseeing the fund’s overall operations. The benefits of corporate trustees include:

• Asset Protection: Corporate trustees provide more asset protection, as they separate the assets of the SMSF from the personal assets of the trustees. This can be particularly important for those who want to invest in property or other high-value assets.
• Succession Planning: Corporate trustees can provide more certainty around succession planning. If a member of the SMSF passes away, the SMSF can continue to operate, as the company does not die with its directors.
• Ease of Administration: Corporate trustees can simplify the setup and ongoing administration of an SMSF, as all decisions are made by the directors of the company. This can reduce the amount of paperwork required and provide a more streamlined process.
• No Minimum Trustee Requirement: you can set up an SMSF by yourself using a corporate trustee.
• More borrowing options and capacity: If you plan to buy investment properties through your SMSF, it is important to note that most SMSF loan lenders prefer a corporate trustee structure. While some lenders may still lend to SMSFs with individual trustees, the loan-to-value ratio (LVR) is typically lower compared to those with a corporate trustee. Therefore, opting for a corporate trustee can potentially increase your chances of securing higher LVRs for SMSF property investments.

However, there are also some disadvantages to consider, including:

• Cost: Setting up an SMSF with a corporate trustee involves additional costs. This can include the cost of setting up the company, as well as ongoing ASIC filing costs. For our competitive company setup and annual ASIC review fees, please refer to this link: Fee Schedule

Conclusion

Choosing the right trustee structure for your SMSF is an important decision that should be made after careful consideration of the benefits and disadvantages of each option. While individual trustees may be a cost-effective option that provides more flexibility, corporate trustees can provide more asset protection, streamline the administration process, and provide more certainty around succession planning. It’s important to seek professional advice before making a final decision, as the right structure will depend on your individual circumstances and goals.