We recommend all SMSFs set up a company to be the trustee for many reasons:
- Better protection and administratively simpler to make changes when something changes
SMSF’s don’t stay the same forever. Members might die, new members (e.g. children) might join, the original members might get divorced or one or both of the members might get dementia or have an accident that affects their mental capacity and leaves them unable to be a trustee. The good thing about SMSFs is that they can deal with changes in the trustee or directors. When a fund has a company as trustee the change is simple (just some paperwork to lodge) and can be managed by the remaining directors. Where the trustees are individuals, it’s far harder – the legal names on all of the investments have to change to the new group of individuals. Some investments actually have to close as they can’t accommodate a change in name and sometimes there are legal processes to go through which delay the changes and in the extreme make it difficult for you to access some of your fund’s assets for a time.
- Control for single member funds
A fund with only one member can have a trustee that is a company with a single director but single member fund CANNOT have just one individual trustee other than under certain temporary and unusual circumstances. A single member fund with individual trustees has to have at least two trustees in the long run. That means that if you want an SMSF on your own, you can only have complete control over your super if you have a company as trustee.
- Might be the only option for some funds
A fund with five or six members who will all be trustees may not be able to have individual trustees in some states. This is because some states only allow up to four people to be trustees of a trust (and remember, a superannuation fund is a special type of trust).
- Easier to keep personal and super fund assets separate
One of the really important legal rules in SMSFs is that the fund’s assets have to be kept completely separate from the members’ own assets. This is really easy to do and to prove to auditors and the tax office when there is a completely separate legal owner – a company trustee.
- Better protection of personal assets
If the fund owns a property, for example, then just like any other property owner the trustees of the fund can be held liable for accidents on their property. If the trustee is a company, then your personal liability is generally limited to the assets held in the SMSF. Assets that you own outside the fund are protected. That same protection doesn’t apply to funds with individual trustees. It’s really just like running a business through a company rather than in your own name.
We also recommend that the company you set up to be the trustee of your SMSF is set up exclusively for that purpose. You might have another company that (say) runs your business or is the trustee of your family trust. Don't use that company, set up a new one.
If you're already a director of a company you will have a special number known as a "director ID". You don't need a new one for your SMSF trustee company - that number is unique to you and you just quote the same number every time you start being a director of a new company. If you don't have a director ID already, read more about them here and make sure you've got yours before you ask Heffron to set up your new trustee company.
There are some benefits of having individual trustees:
- Having individual trustees is slightly cheaper
Setting up a company has a one-off fee (as part of the set up) and each year the company regulator, ASIC charges a small fee. But in our experience, generally the best structure for an SMSF is to have a company and these costs are a worthwhile investment in the future.
- Individual trustee structures are also simpler
Given there is no need to set up an extra structure, the company, individual trustee structures are slightly easier.