An SMSF Trustee Decision For The Long Haul

By Robin Bowerman | More Articles by Robin Bowerman

One of the longest-term decisions many investors will make is whether to setup a self-managed super fund with individual trustees or a corporate trustee.

It is a decision that could have financial and personal implications for as long as the SMSF remains in existence including when a member leaves the fund and/or a new member joins.

Indeed, some SMSF members would not fully recognise the key differences between having individual trustees or a corporate trustee until a member dies. Of course, this consideration is particularly pertinent given the ageing of the population.

Under superannuation law, all members of an SMSF must be either individual trustees or directors of a corporate trustee of the fund. An SMSF with individual trustees must have at least two individual trustees yet a corporate trustee can have only one director.

The tax office’s latest-available self-managed super fund annual statistical review records that 92 per cent of the SMSFs established in 2013-14 had individual trustees – a rise of two per cent over three years.

As the tax office observes, "there has been a consistent shift away from corporate trustees". This could partly be attributable to some investors focusing on what may seem the easiest and most hassle-free way to setup an SMSF – perhaps without weighing-up the long-term differences between the two types of trusteeship.

Others planning an SMSF would no doubt carefully compare the features of each type of trustee – perhaps in consultation with their professional advisers – and then choose the best perceived course for their circumstances.

Interestingly, 77 per cent of SMSFs in existence on June 30, 2014 had individual trustees. In other words, 33 per cent have corporate trustees against 8 per cent for new SMSFs.

A proportion of SMSFs would have begun with individual trustees and later switched to a corporate trustee, perhaps after the death of a member.

The tax office, as regulator of self-managed super, urges would-be SMSF members to understand the differences between the two types of trustees. It could be worthwhile gaining advice about the issue from an SMSF specialist.

A recently-updated tax office publication about the differences between individual and corporate trustees includes an easy-to-read comparison of their respective features.

On one hand, individual trustees – with each member acting as a trustee – can cost less to establish because a company is not setup to act as a trustee. However, the ATO points out that there are other considerations apart from initial cost.

An SMSF with individual trustees must hold its assets in the name of all those individuals as trustees of the fund. If an individual trustee is replaced, the names on the funds’ ownership documents must also change. “This can be costly and time consuming,” the tax office warns.

By contrast with a corporate trustee, assets are held in the name of a company as trustee. If trustee directors change, the assets remain in the name of the same company.

If a fund has two individual trustees and one dies, the fund must appoint another trustee to continue as an SMSF. (This is because of the requirement that a fund must have at least two individual trustees.) Yet if an SMSF has a corporate trustee, a deceased trustee director may not have to be replaced because a corporate trustee can have a single director.

In other words, a corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member.


Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia.

As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.


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About Robin Bowerman

Robin Bowerman is Head of Market Strategy and Communication, Vanguard Australia. As a renowned market commentator and editor Robin has spent more than two decades writing about all things investment.

View more articles by Robin Bowerman →