Corporate Trustee v Individual Trustee: Key Differences for SMSFs
Benefits of having individual trustees
If individuals act as trustees of your SMSF, then you minimise the administrative hassle and upfront costs of establishing a company to act as trustee. Other benefits are:
- no ASIC forms to complete to establish the SMSF;
- no ongoing ASIC reporting obligations to comply with; and
- fewer procedural issues to deal with, as there are more flexible requirements for holding trustee meetings and no need to comply with a company constitution.
Benefits of having a corporate trustee
A corporate trustee can offer you the following long term benefits which individual trustees cannot provide:
- Liability issues — companies have the benefit of limited liability. Therefore, if a corporate trustee suffers any liability, the individual directors will not suffer personal liability (other than in exceptional circumstances). On the other hand, an individual who acts as trustee exposes their personal assets if they incur any liability as trustee of an SMSF or other trust: if the individual’s right of indemnity against the SMSF is not sufficient to discharge the liability, then the individual is still liable for the shortfall.
- Simpler succession and control of a trust on death of an individual — a company continues to function even after the death of one of its directors, therefore, the control of a SMSF or other trust can continue even after the death of an individual SMSF member/director.
- Assets are kept separate — it is easier for a corporate trustee to ensure that trust assets are kept separate from the personal assets of SMSF members.
- Administrative efficiency for SMSFs — if a new member is introduced to an SMSF, then, generally they must become a trustee of the fund. If the relevant SMSF has:
- a corporate trustee, then a new director needs to be appointed to the company and notified to ASIC; or
- an individual trustee, a deed of appointment needs to executed and, in most cases, all trust assets need to be transferred into the new trustee’s name (or jointly with other trustees). This can cause major administrative hassles if the trust assets consist of real estate and shares. The hassles do not apply to a corporate trustee as the SMSF assets are usually held in the company name, and the company remains as trustee.
- Lender requirements for limited recourse borrowing arrangements — bank lenders generally insist upon the SMSF having a corporate trustee.