More and more people are considering a Self Managed Superannuation Fund and should be aware that all SMSFs must have a trustee. This trustee can be either made up of the individual members or a company in which individual members are the directors and the shareholders.
Tony Mitchell, a specialist in commercial law at Stacks Law Firm, says that while most SMSFs are set up with individual members as trustees, there are important advantages in having a company as trustee.
“Individual trustees can be personally liable for administration of their SMSF, whereas the directors of a trustee company enjoy the benefits of limited liability,” Mr Mitchell said.
“According to a corporate law lawyer one of the most important aspects of a SMSF is ensuring that fund assets are kept entirely separate from assets of the members. This separation is much easier to achieve if the trustee of the SMSF is a company.
“Each individual asset of a SMSF must have the trustee of the fund recorded as the owner of the asset. If the trustees are individuals, this requirement can give rise to a significant administrative burden if there is a change to the membership of the fund. However, if the trustee is a company, this administrative burden is avoided.”
Mr Mitchell pointed out that if a member of a SMSF dies there is a lot of paperwork involved. It’s easier with a company acting as trustee.
If an SMSF wants to borrow money to acquire new assets it has to comply with limited recourse borrowing specified in the Superannuation Industry (Supervision) Act. Most banks will not lend money to an SMSF unless its trustee is a company. Having a company as trustee for an SMSF is recommended by the Australian Securities and Investment Commission.
“In light of all these advantages it is surprising that most SMSFs in Australia have individuals as their trustees rather than a company,” Mr Mitchell said.
There are some disadvantages in having a company as trustee, including some additional setup costs and an extra annual government fee for company trustees, but Mr Mitchell said in most cases these are well and truly outweighed by the advantages.
“The laws surrounding Self Managed Superannuation Funds can seem confusing for people who are considering how to manage their assets in retirement planning, so it is wise to seek legal advice from experts in the field,” Mr Mitchell said.
“There can be legal complications if an SMSF is not set up properly in line with all the tax office requirements and with a trustee arrangement that fits in with each person’s needs and what they hope to achieve.”
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