Reasons to advise your clients to have a company as trustee for an SMSF
I am commonly asked by accountants "should I set my SMSF clients up with a company as trustee or just have individuals?"
It is always my preference to have a company as trustee for an SMSF over individuals for a number of reasons. The main reasons are risk minimisation, asset protection and simplifying administration.
The administrative task of introducing a new member or if a member leaves the fund (or dies) is far simpler if the trustee is a company.
The change of trustee process revolves around the documenting the change of director and various forms in relation to the SMSF. This process should be relatively simple and be completed quickly and cheaply. Comparing this to the changing individual trustees, changes are require to be made to each individual asset of the fund. Talking from experience, this can result in spiraling time, money and effort even with just a small number of investments. Just think of the added stress on your client who may have had just lost their husband!
Another administrative advantage of a corporate trustee is that a single member fund can have that member as the sole director of the SMSF. This is not the case with individual trustees, there must be two individuals acting as trustee of a single member fund. This obviously provides the advantage that the single member does not need to consult with anyone else to make decisions and sign off on compliance documents.
Asset Protection and Risk Minimisation
A corporate trustee will provide a clear separation of superannuation assets to personal assets, this can be vitally important if your client is unfortunate enough to find themselves in financial difficulties. Although, in most cases the SMSF assets are not available to creditors, you do not want a situation where your client has to prove that the assets belong to the fund. It is also for this reason that the corporate trustee should not be a trading entity.
With more and more SMSF's owning direct property, corporate trustee will also minimize "property risk". That is the risks associated with property ownership. We all know that we should have public liability insurance for our properties; however do we all know that we will always be covered for those unforeseen events?? Will the insurance company try to shift the liability? A corporate trustee may be able to migrate the unlikely property risk that may arise.
The Bottom Line
So why doesn't everyone just get a corporate trustee? Well individuals may just look at the higher initial set-up cost.
At Discover Super we charge $1390 for a company and SMSF set-up compared to $660 for an individual trustees SMSF. Ongoing each year the corporate trustee will have an ASIC fee - this is around $50 for a company that has the sole purpose of being a SMSF trustee (just over $200 if the company does not have the sole purpose to act as a SMSF Trustee).
As I stated above - It is always my preference to have a corporate trustee over individuals as trustee.