A self-managed superannuation fund (SMSF) is a trust created and managed following superannuation legislation. An SMSF trustee controls and makes decisions for the fund to ensure it complies with superannuation rules.
When you build an SMSF, you will decide whether to have an individual or a corporate trustee. The trustee structure you choose has several consequences for using your fund and the rules to follow. Because of this, you must understand the implications of each structure and consider the various options carefully before building your fund. This article looks at the differences between an individual and a corporate trustee for an SMSF.
Individual SMSF Trustee
An individual SMSF trustee is an individual who the fund members have appointed to act as trustee. This means the trustee makes decisions on behalf of the fund in accordance with the trust deed. Essentially, a trustee is a fiduciary responsible for acting in the best interests of the fund and its members.
The member is the individual in control of the fund and the party responsible for complying with superannuation legislation. The member can be the sole trustee or a director of a corporate trustee.
The key responsibilities of an individual trustee include:
· Administering the fund
· Maintaining compliance with superannuation legislation
· Making decisions regarding distributions to beneficiaries
· Making decisions regarding investments
· Performing other duties required by the trust deed and superannuation legislation
Corporate SMSF Trustee
A corporate trustee is a separate legal entity from the fund and the members. It has its membership, directors, and assets as a separate entity. Essentially, it is an independent ‘company’ appointed to act as the trustee for an SMSF.
Corporate trustees are sometimes also referred to as ‘special purpose vehicles.’ They may also conduct a range of other activities unrelated to SMSFs, and may or may not be acting per superannuation legislation.
Corporate trustees are often used to:
· Transfer the assets and liabilities of the SMSF to another fund, such as a corporate fund
· Take on liabilities and assets of other superannuation funds
· Bring together assets of several members and transfer them to a fund
· Administer a superannuation fund
· invest in assets instead of paying out members’ benefits
Choosing the Trustee Structure
You should consider several factors when choosing between an individual and a corporate trustee.
The first consideration is whether you want to be your own trustee. If you prefer to have a corporate trustee, there are several reasons for choosing this option. Firstly, it can be less costly to use a corporate trustee. Secondly, if you would like to be a director of the corporate trustee, it allows you to complete an application for registration of a corporate trustee.
On the other hand, if you prefer to be an individual trustee, maintaining compliance with superannuation legislation can be more difficult. As an individual trustee, you will be held liable for decisions you make on behalf of the fund. This may mean you must perform administrative tasks or involve paying for additional costs in some cases.
Another consideration is which party will be interested in managing the SMSF. Organisations generally use corporate trustees. This means they can outsource the fund’s management to a service provider or engage in other business operations using the SMSF.
This is important if the fund has many members and you are managing the fund on behalf of a company. Using a corporate trustee provides greater flexibility for managing the fund and allows you to utilise the SMSF for other business activities.
Conclusion
Ultimately, choosing between an individual and a corporate trustee is a personal decision. You should consider the benefits and disadvantages of each structure and what you would like to do with your superannuation. The essential thing to remember is that you are responsible for ensuring your fund complies with all superannuation legislation, regardless of whether you choose an individual or corporate trustee.
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