SMSF roles explained: Members, Trustees, Directors and more

What are the different roles in an SMSF?

There are up to five roles a person might hold within an SMSF structure:

• Member – a person whose superannuation is held in the fund
• Trustee – the person responsible for governing and running the fund in the interests of all members
• Director – the individual who acts in the trustee role when the fund uses a corporate trustee structure
• Secretary – an optional role within the corporate trustee that assists with the execution of documents
• Shareholder – the owner of the corporate trustee company

The same person can hold all five roles at once. Here is what each one means in practice.

Members

A member is the person whose superannuation is held in the SMSF. This is the most straightforward of all the SMSF roles.

We say "mostly" because it is actually possible to have a member who has no money in the fund right now. Check your trust deed before assuming you can do this in your SMSF – in some funds, membership ceases automatically as soon as the member's balance reaches nil. An SMSF can have no more than six members.

Why would someone belong to an SMSF if they had no money in it? Usually they would not, but one example is where adult children belong to their parents' fund. The parents want to continue their SMSF and play an active role as trustees, but would like their children to help by acting as additional trustees. The key here is that the children could only help run the fund if they were also members of the fund.

You may have heard of cases where children can do this without being members if they hold an enduring power of attorney for the parent. However, this is only possible if the parents stop being trustees entirely. If the parents want to remain closely involved, having the children join as additional members – even without contributing any of their own super – may be a better approach.

Trustees

A trustee is the person responsible for governing and running the SMSF. Trustees make decisions about what suppliers the fund will use, how the money will be invested, and when benefit payments are made, among other things.

Normally, trustees are the same group of people as the members — super laws generally require members to be trustees and vice versa. But even when that is the case, it is an entirely different hat they wear. Members are allowed to be self-interested; trustees are not. When wearing their trustee hat, they must constantly check they are acting in the best interests of all members. For more detail on what trustees must do once appointed, see our article on SMSF trustee responsibilities.

Who can be a trustee of an SMSF?

There are exceptions to the general rule that all members are trustees and all trustees are members.

A good example is minor children. They can have money in the fund as members but cannot be a trustee. A parent would usually fill this role on their behalf until the child turns 18, at which point they would need to become a trustee themselves.

Someone who is mentally incapacitated – through dementia or another mental impairment – may not be legally able to act as a trustee, but they can remain a member provided someone else can act as trustee on their behalf. Similarly, people who move overseas often need someone else to act as trustee in their place, because controlling the fund from overseas could cause it to lose its status as an Australian superannuation fund, which creates significant tax complications.

In both cases, special rules must be followed to keep the fund compliant. The person acting as trustee in place of the member must be their legal personal representative – usually someone who holds an enduring power of attorney that would continue to apply even if the member lost mental capacity. Importantly, that person must completely replace the member as trustee rather than act alongside them.

For example: Sherry is a member and trustee of her SMSF, alongside her husband Darren. After a dementia diagnosis, she decides to step back from the trustee role. Her daughter Chris holds an enduring power of attorney for Sherry, which allows the family to reorganise the fund so that Sherry and Darren remain the only members, but Chris replaces Sherry as trustee. Chris and Darren then become the trustees. The only way all three could run the fund together would be if Chris became a member as well.

Finally, there are special rules for single-member funds. These funds sometimes require a second person to act as trustee, but that person does not need to be a member of the fund.

Directors and Secretaries

When an SMSF uses a corporate trustee, the individuals who govern the fund are its directors rather than individual trustees. Most SMSFs today appoint a company as trustee rather than having a group of individuals act in that role. In this structure, the people who would otherwise be called trustees are instead the directors of the trustee company. The concept is the same — they are in charge of making decisions about the fund.

What does a secretary do in an SMSF trustee company?

Trustee companies also often have a secretary. In a conventional company carrying on a business, the secretary might play an important role in compliance and governance. This is not especially relevant for an SMSF trustee company, but having a secretary can still be practical.

Directors often need to sign documents for third parties such as banks or financial institutions. Those third parties can assume a document has been validly signed if it is executed by two directors, or by one director and a secretary. For a sole director company, the director can also act as secretary and sign in both capacities, making it straightforward for a third party to confirm the document is valid without needing to verify how many directors the company has.

When clients set up new trustee companies with two members and directors, we generally recommend that both also act as company secretaries. That way, if one dies, it is clear the other can continue to act for the company.

There is no legal requirement to have a secretary at all, and super law does not require any particular person to fill the role — it could even be someone who is not a director or member.

Shareholders

In a corporate trustee structure, the trustee company is owned by shareholders. This role only applies where the SMSF has a corporate trustee.

All companies are owned by shareholders, including companies set up solely to act as the trustee of an SMSF. While the shares themselves may not be worth much, it is important to understand who owns them – because for many companies, shareholders have the power to decide who will be the directors, and the directors control the SMSF.

Who can be a shareholder of an SMSF trustee company?

Interestingly, super law includes no rules about who can be a shareholder of a trustee company, how many shares they may hold, or how decisions about directors are made. When setting up new trustee companies, we generally suggest the SMSF members own the shares equally. Clients often choose to structure the share count with future changes in mind. For example, a couple with three children might establish a company with 60 shares, so that when both have passed away, their children can each inherit 20 shares and share control of the company – which may matter greatly when decisions are being made about paying out death benefits.

Shareholder ownership can also be important for members who move overseas. If a couple both moved overseas and needed to hand trustee control to a local relative under an enduring power of attorney, there would be nothing to stop the members continuing to own the shares in the trustee company. In fact, retaining the shares would be sensible – it means they keep ultimate control. If circumstances change, they can revoke the power of attorney and use their shareholder voting rights to replace the director.

That said, wearing a shareholder hat is entirely different from being a director. Shareholders cannot step in and make day-to-day decisions about the SMSF – that remains the role of the director or directors alone.

You may also be interested in...

• What are the responsibilities of an SMSF trustee?
• Choosing your SMSF Structure: Individual vs Corporate trustee

This article is for general information only. It does not constitute financial product advice and has been prepared without taking into account any individual's personal objectives, situation or needs. It is not intended to be a complete summary of the issues and should not be relied upon without seeking advice specific to your circumstances.