Who should be the SMSF trustee?
Superannuation laws require that every member of an SMSF must either be a trustee of the fund or a director of a company which is the trustee.
Having members as trustees personally may sound simple and does avoid the cost of having or establishing a company to undertake the role. Companies’ law allows a special purpose company to be established for this role for under $1,000 and have annual filing fees of under $50.
Company as Trustee of your SMSF
There are a number of very good reasons why the trustee should be a company which does nothing except be trustee of the SMSF. These all need to be considered when making the decision.
There will never be a dispute about in what capacity the company holds assets.
If the trustee of your SMSF is you personally or a company which has other roles, there is the possibility that someone who wants to make a claim or take legal action against you or that company may believe that the superannuation assets could be accessed if successful. While your lawyers may successfully defend such a claim, victory is not guaranteed and a legal battle would be costly regardless of the outcome.
It would be better to avoid those assets coming to the attention of a claimant by having them clearly owned by the superannuation trustee.
Companies for Estate Planning
The trustees of SMSFs have a number of legal and practical obligations. If a person who is trustee becomes incapable of running the SMSF, they would need to be replaced in the role. This is not necessarily a straight forward process. All investments and bank accounts would then need to be changed to the name of the new trustee. Again, this is not necessarily a straight forward process and there could be delays in providing income to members of the fund while the paperwork is sorted out. Similar difficulties will be presented if a trustee dies.
A company which is trustee will continue in the role with all assets and bank accounts in its name regardless of the health or mental capacity of its directors. Changing the director of a trustee company is a very simple and inexpensive process, should it become necessary.
Debts of Companies Are Not Paid By Directors
The debts of companies are not paid by the company’s directors if the company has insufficient assets to cover the debt, except in limited circumstances.
It is unlikely that there would be a debt incurred by a superannuation fund trustee which it could not meet. It is, however, possible that there could be a legal claim against the trustee. This could arise from a legal claim which is not met by insurance on a fund asset. For example, if the fund owned a property where a public liability claim was made on the owner and, for whatever reason, there was no insurance coverage.
It should also be appreciated that one of the Australian Taxation Office’s sanctions is to declare the fund to be non-complying. This would result in a tax assessment being sent to the trustees that is equal to 45% of the fund’s assets . The validity of such a tax assessment was upheld in the 2011 Triway Superannuation Fund case. Having a company, not a person, receive such an assessment is clearly preferable.