An SMSF must have either a corporate trustee or at least two individual trustees.
When you set up an SMSF you take on the role of either:
- Individual trustee, or
- Director of a company that is the trustee (called a corporate trustee)
A trustee is the persons or company that is responsible for running the fund. Having an SMSF means that as trustee, you are wholly responsible for the fund, even though you may have engaged other professionals to help you in running the fund.
Being a trustee gives you the chance to actively manage your own investments, but also brings responsibilities. All trustees of the SMSF and directors of a corporate trustee are equally responsible for managing the SMSF and making decisions — even if one takes a more active role in the day-to-day running.
As trustee you need to make sure the fund is viable and you have the time and skills to make decisions about the fund’s investments and to meet the obligations under the fund governing rules (Trust Deed) and legislation. However, if you feel you don’t have the required skills you can seek advice from professionals who specialise in providing advice to SMSFs.
Who can be a trustee
Anyone 18 years old or over can be a trustee of a super fund as long as they are not under a legal disability (such as mental incapacity) or a disqualified person:
A person is disqualified if they:
- Have been convicted of an offence involving dishonesty
- Have been subject to a civil penalty order under the superannuation laws
- Are insolvent under administration (including being an undischarged bankrupt)
- Have been disqualified by a court or regulator (for example, by the ATO or APRA)
A company can’t be a trustee if:
- A director or other responsible officer of the company (such as a secretary or executive officer) is a disqualified person
- A receiver, administrator or provisional liquidator has been appointed to the company
- Action has started to wind up the company
Members under 18 can't be trustees however, their parent, guardian or legal personal representative can act on their behalf.
If you are a disqualified person you cannot have anyone to act as your replacement.
Different types of trustee
The members of an SMSF are required to be individual trustees of the fund or directors if the SMSF has a corporate trustee. Where the fund has one member only there is a requirement that a trustee consisting of individuals must have a second individual as trustee who is not required to be a member of the fund. In the case of a corporate trustee it is possible to have a second director but it is not compulsory.
There are some advantages and disadvantages with the two different types of trustee including:
On the death of an individual trustee the deceased member’s legal personal representative may be appointed until the deceased member’s benefit has commenced to be paid. If only one trustee remains a replacement trustee, who is not a fund member, must be appointed or they must move to a sole director corporate trustee. The fund has up to 6 months to comply to remain an SMSF. Investments of the fund are required to be transferred to the names of the current trustees of the fund.
A corporate trustee continues in the event of the death of a director. The fund investments remain in the name of the company as trustee and provide more certainty in relation to control of the SMSF.
Ownership of fund assets
Fund assets are required to be registered in the name of all fund trustees. When a trustee leaves the fund the assets will be required to be registered in the names of the new or replacement trustee
The recording and registering assets is generally simpler than individual trustees. Fund assets are registered in the name of the corporate trustee. Any change in director will not require a change to the name in which the fund assets are registered.
Separation of assets
The fund’s assets must be kept separate from any assets held personally by the trustee. There is a risk that fund assets are intermingled with personal assets.
Because the fund’s assets are held in the name of the company acting as trustee for the fund there is less risk that the company assets will be intermingled with other assets such as those of the fund members.
If there is a breach of the superannuation laws, administrative penalties may be imposed on each trustee.
If there is a breach of the superannuation laws, administrative penalties are imposed on the corporate trustee only and not each director.
Establishment and ongoing costs of individual trustees are generally less as there are no ASIC fees applying
Charges apply to the establishment of the company as well as the payment of an annual review fee each year to ASIC.