Individual trustee to corporate trustee

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12 October 2022

Potential benefits of changing from an Individual Trustee to a Corporate trustee arrangement.

Succession flexibility

When an individual trustee passes away, prompt action needs to be taken to ensure that assets are registered in the name of the current (i.e. living) trustees. This is not the case for a fund with a corporate trustee, as a company generally exists into perpetuity. In this case, only the directorship of the company needs to be updated, which is commonly a far simpler process. Having a corporate trustee also provides a better structure for handling member incapacity and divorce situations.

Ease of administration

With a corporate trustee, the admission of new members to the fund (such as children) and the acquisition or disposal of assets are generally a simpler process. The legal ownership of the fund's asset does not need to be changed every time a member joins or leaves the fund. It is also easier to show that the fund remains an Australian resident fund should members move overseas for a period of time.

Commercial necessity

It is highly likely that a lending bank will require the fund to have a corporate trustee if the SMSF elects to use a limited recourse borrowing arrangement. 

Sole member status 

If an SMSF with individual trustees is reduced to only one member (e.g. due to marriage break-down or if a member passes away), then the remaining member will not be able to continue the trusteeship of the SMSF by themselves and will be required to find an additional trustee for the fund. With a corporate trustee, a remaining member can continue on as sole director of the company. 

Lower penalties 

Under the new penalty regime for SMSFs, only one penalty unit is applied to a fund with a corporate trustee. However, for individual trustees, each trustee is penalised personally, resulting in at least double the penaltybeing applied. otential benefits of changing from an individual trustee to a corporate trustee arrangement.

By Unison contributor 

Corporate Trustee

Individual Trustee

Continuous succession
A company has an indefinite life span; therefore, a corporate trustee will offer a better sense of control for the SMSF and more certainty in the circumstances of the death or incapacity of a member.
Cease upon death
If a SMSF has individual trustees, timely action must be taken on the death of a member to ensure the trustee/ member rules are satisfied. SMSF rules don’t allow for a sole individual member/trustee of an SMSF.
Administrative efficiency
When members are admitted or cease membership of an SMSF, all that is required is that person becomes or stops being a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, the name 
on the underlying SMSF assets remains in the name of the corporate trustee.
Extra and costly paperwork
Introducing a new member to an SMSF with individual trustees requires that person to become a trustee. As trust 
assets must be held in the name of the trustees, this will require the title to be transferred to the new trustees when 
a member is admitted to or exits the fund.
Lump sum and pensions
A SMSF with a corporate trustee can pay benefits either as pensions or as lump sums.
Paperwork for lump sums
The SMSF rules require that a lump sum can only be paid by surrendering a pension entitlement or commuting a pension. This gives rise to extra paperwork.
Sole member SMSF
You can have a SMSF where one individual is both the sole director and sole member.
Sole member SMSF
A sole member SMSF must have two individual trustees.
Greater asset protection
Companies are subject to limited liability; therefore, a corporate trustee will provide greater protection where a party sues the trustee for damages.
Less asset protection
If an individual trustee suffers liability, the trustee’s personal assets may be exposed.
Estate planning flexibility
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change because of the 
death of a member. A director can also have greater control over their succession plans by passing on their shares in the corporate trustee.
Extra administration and cost
The death of a member requires there to be a change of trustee and this will give rise to considerable administrative work and costs at a sensitive time.
Limited ATO penalties
The new ATO penalties regime which came into effect 1 July 2014 applies penalties on a per trustee basis. A corporate trustee is counted as one trustee therefore penalties are limited when a penalty is imposed.
Additional ATO penalties
The new ATO penalties regime which came into effect 1 July 2014 applies penalties on a per trustee basis. As individual trustees, each trustee is liable for the imposed penalty, therefore this could be up to four times that the penalty will be imposed.
Clear separation of asset ownership
A corporate trustee structure separates your personal and superannuation assets and gives clarity as to what assets are being dealt with.
Unclear separation of asset ownership
Individual trustees owning assets, can, at times create confusion as to whose assets are being dealt with.
Lump sum and pensions
An SMSF with a corporate trustee can pay benefits either as pensions or as lump sums.
Paperwork for lump sums
The SMSF rules require that a lump sum can only be paid by surrendering a pension entitlement or commuting a pension. This gives rise to extra paperwork.

Corporate Trustee

Continuous succession
A company has an indefinite life span; therefore, a corporate trustee can make control of a SMSF more certain in the circumstances of the death or incapacity of a member.
Administrative efficiency
When members are admitted or cease membership of a SMSF, all that is required is that person becomes or stops being a director of the corporate trustee. The corporate trustee does not change as a result. Therefore, the name 
on the underlying SMSF assets remains in the name of the corporate trustee.
Lump sum and pensions
A SMSF with a corporate trustee can pay benefits either as pensions or as lump sums.
Sole member SMSF
You can have a SMSF where one individual is both the sole director and sole member.
Greater asset protection
Companies are subject to limited liability; therefore, a corporate trustee will provide greater protection where a party sues the trustee for damages.
Estate planning flexibility
A corporate trustee ensures greater flexibility for estate planning, as the trustee does not change because of the 
death of a member. A director can also have greater control over their succession plans by passing on their shares in the corporate trustee.
Limited ATO penalties
The new ATO penalties regime which came into effect 1 July 2014 applies penalties on a per trustee basis. A corporate trustee is counted as one trustee therefore penalties are limited to one times the penalty imposed.
Clear separation of asset ownership
A corporate trustee structure separates your personal and superannuation assets and gives clarity as to what assets are being dealt with.

Individual Trustee

Cease upon death
If a SMSF has individual trustees, timely action must be taken on the death of a member to ensure the trustee/ member rules are satisfied. SMSF rules don’t allow for a sole individual member/trustee of an SMSF.
Extra and costly paperwork
Introducing a new member to an SMSF with individual trustees requires that person to become a trustee. As trust 
assets must be held in the name of the trustees, this will require the title to be transferred to the new trustees when 
a member is admitted to or exits the fund.
Paperwork for lump sums
The SMSF rules require that a lump sum can only be paid by surrendering a pension entitlement or commuting a pension. This gives rise to extra paperwork.
Sole member SMSF
A sole member SMSF must have two individual trustees.
Less asset protection
If an individual trustee suffers liability, the trustee’s personal assets may be exposed.
Extra administration and cost
The death of a member requires there to be a change of trustee and this will give rise to considerable administrative work and costs at a sensitive time.
Additional ATO penalties
The new ATO penalties regime which came into effect 1 July 2014 applies penalties on a per trustee basis. As individual trustees, each trustee is liable for the imposed penalty, therefore this could be up to four times the penalty imposed.
Unclear separation of asset ownership
Individual trustees owning assets, can, at times create confusion as to whose assets are being dealt with.

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Some of the Unison SMSF Audit personnel involved in providing services may be members of a professional scheme approved under Professional Standards Legislation such that their occupational liability is limited under that Legislation. To the extent that applies, the following disclaimer applies to them. If you have any questions about the applicability of Professional Standards Legislation to Unison SMSF Audit’s personnel involved in providing services please speak to your Unison SMSF Audit adviser.

Liability limited by a scheme approved under Professional Standards Legislation.