Trustees

You can choose one of the following SMSF Trustee structures for your fund:

  • Individual SMSF trustee
  • Corporate SMSF trustee (essentially, a company acts as trustee for the fund).

Your choice of trustee will make a difference to the way you administer your fund and the types of benefits it can pay, so you need to make sure it suits your circumstances. We recommend you discuss your trustee options with an SMSF professional.

 

If your fund has individual trustees, it is an SMSF if all of the following apply:

  • it has four or fewer members
  • each member is a trustee
  • each trustee is a member (except for single-member funds – see below)
  • no member is an employee of another member (unless they are related)
  • no trustee is paid for their duties or services as a trustee

 

If your fund has a corporate trustee, it is an SMSF if all of the following apply:

  • it has four or fewer members
  • each member of the fund is a director of the company
  • each director of the corporate trustee is a member of the fund (except for single-member funds – see below)
  • no member is an employee of another member (unless they are related)
  • the corporate trustee is not paid for its services as a trustee
  • no director of the corporate trustee is paid for their duties or services as a director in relation to the fund.

Single-member funds
You can set up your super fund with only one member, although some of the requirements are more restrictive.

If your fund has:

  • a corporate trustee
    • the trustee company can have one or two directors, but no more
    • the fund member must be either the sole director or one of the two directors.
      If there are two directors and the fund member is an employee of the other director, the fund member and the other director must be relatives.
  • individual trustees (rather than a corporate trustee)
    • there must be two trustees
    • one trustee must be the fund member.
      If the fund member is an employee of the other trustee, the fund member and the other trustee must be relatives.

 

None of the trustees or directors can be paid for their services as a trustee (or as director of the corporate trustee) in relation to the fund.

 

Advantages and Disadvantages

CORPORATE TRUSTEE INDIVIDUAL TRUSTEES
Sole member SMSF Sole member SMSF
You can have an SMSF where one individual is both the sole member and the sole director. A sole member SMSF must have two individual trustees.
Continuous succession Ceases upon death
A company has an indefinite life span; in other words, it cannot die. Therefore, a corporate trustee can make control of a SMSF more certain in the circumstances of the death or incapacity of a member. If the SMSF has individual trustees, eg, a mum and dad SMSF, then timely action must be taken on the death of a member to ensure the trustee/member rules are satisfied (SMSF rules do not allow a sole individual trustee/member SMSF).
Lump sums and pensions Lump sums only payable on commuting pension
An SMSF with a corporate trustee can pay benefits either as pensions or as lump sums. Some practitioners argue that the member must surrender or commute their pension entitlement if they wish to obtain a lump sum (as an SMSF must have its primary purpose of paying a pension). According to this argument, a fund cannot simply pay a lump sum benefit, and extra paperwork is needed to evidence the pension entitlement first being requested and then being commuted.
Administrative efficiency Extra and costly paperwork
When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, title to all the assets of the SMSF remains in the name of the corporate trustee. To introduce a new member to an SMSF with individual trustees requires that person to become a trustee. As trust assets must be held in the names of the trustees, this will require the title to all assets to be transferred to the new trustees when a member is admitted to or exits the fund.
Greater asset protection Less asset protection
As companies are subject to limited liability, a corporate trustee will provide greater protection where a party sues the trustee for damages. If an individual trustee suffers any liability, the trustee’s personal assets may be exposed.
Estate planning flexibility Extra administration and costs
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change as a result of the death of a member. The death of a member requires there to be a change of trustee, and this gives rise to considerable administrative work and costs at an inopportune time.