Asset protection
As a corporate trustee is subject to limited liability, this may provide greater protection of personal assets. However, this may not necessarily provide protection from penalties as, under the SIS Act, the regulator is able to pursue any person involved in a breach of the applicable legislation.
For example, if the SMSF owns a property and a personal injury claim is made against the owner of the property, all assets of the owner are at risk to meet that claim.
If the trustee is a corporation, the claim would be limited by the assets in the fund. If, however, the trustees are individuals, then their personal assets are also at risk.
Borrowing within superannuation
If an SMSF wishes to borrow funds under a Limited Recourse Borrowing Arrangement, most of the major lenders will generally insist that the SMSF has a corporate trustee, even though this is not a legislative requirement.
Cost considerations
There is an establishment cost for a new trustee company (which should be a special purpose company), along with a small annual ASIC levy.
General guidelines
Given these considerations, the choice of a corporate trustee or individual trustees may vary, depending on the number of members in the SMSF.
- Single-member SMSF – the cleanest approach is a single-director company, so that no other parties are involved. You also need to ensure a will is prepared that appoints an executor as the new director of the trustee company, to handle the SMSF on the member’s death.
- Two-member SMSF – either structure will work and the decision will hinge more on whether the members wish to pay a little more for the running of the trustee company, as well as the perceived benefits of that structure.
- Three- and four-member SMSF – while either trustee structure is suitable legally, practical issues mean a corporate trustee structure might be the preferable option.
