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Should I appoint myself or use a corporate trustee when establishing a Self Managed Superannuation Fund (SMSF)?

The trustee of a SMSF must be either a company or an individual.  Where a corporate trustee is used all fund members must also be directors of the trustee company and vice versa. Where the SMSF is a one member fund it must either have a corporate trustee or two individuals acting as trustee. The second individual trustee can be any natural person over the age of 18, as long as they are not an employee of the trustee. A company is required to submit an Annual Company Statement with the Australian Securities and Investments Commission (ASIC). 

The lodgement fee is $40 for companies whose sole purpose is to act as trustee. It is recommended that a new company be incorporated for this purpose rather than using an existing company so as not to put the assets of the fund at risk.  

Advantages of an Individual Trustee:

Lower Costs:  A SMSF with an individual trustee is usually cheaper to establish. There are no fees payable for updating the company register and lodging forms with ASIC.

Less Compliance:  Less compliance is required when establishing the fund. There are fewer statutory forms and less reporting requirements.

Lower Penalties:  The regulations give courts the ability to levy higher fines on companies than individuals.  A company fine may be 5 times that of an individual.  

Disadvantages of an Individual Trustee: Lack of Control:  If you are the sole member of a SMSF you will require another individual to act as trustee thereby relinquishing some control. In the event of death in a single member fund, the surviving trustee will attain significant control of the fund.

Increased Compliance:  Each time a member enters or exits the SMSF all of the assets of the fund will be required have their titles amended.

Exposure:  Personal assets of the individual trustee may be at risk in certain circumstances.  

Advantages of a Corporate Trustee: Less Compliance:  A company has an indefinite life span.  As members enter or exit the fund the only requirement is that changes to update the company directorships be lodged with ASIC.

Greater Control:  For a single member fund, the member can be the sole director of the company.  This is preferable to having a second individual when using individuals as trustees.

Better Legal Protection:  Corporate trustees are companies which are subject to limited liability.  This provides greater protection compared to individual trustees.  Individuals acting as trustees may be jointly and severally liable for actions against the fund.

Increases Ability to Borrow: In the event that the SMSF wishes to finance the acquisition of real estate, most lending institutions will insist on a corporate trustee structure.  

Disadvantages of a Corporate Trustee:

More Expensive:  It is more costlyto establish and there are ongoing fees for  ASIC compliance.  There will also be costs in maintaining the Company Register.