Choosing your SMSF trustee structure

When setting up a self-managed superannuation fund (SMSF), one of the major considerations is deciding its trustee structure.

The current rules governing superannuation requires SMSFs to have a trustee, who will be responsible for controlling and making decisions for the fund and making sure that it complies with the law.

There are two types of SMSF trustee structure: individual and corporate. While both structures are useful depending on certain situations, they have differences in terms of administration rules, costs, and other factors.

Corporate Trustee vs Individual Trustee Structures

Establishing the structure of an SMSF involves choosing whether it would take the individual or corporate route. The main difference between the two boils down to who acts as the trustee: in an individual structure, each member acts as a trustee; on other hand, a company acts as the trustee in a corporate structure, while members serve as directors.

Member and trustee requirements
Individual Trustees	Corporate Trustee
Two to six members — However, some state and territory laws restrict the number of trustees to a maximum of four. For single member funds: There must be 2 trustees. Each member of the fund must be a trustee. A member cannot be an employee of another member unless they are relatives. Fund assets are registered in the name of all individual trustees.	Two to six members — As with individual trustee, there are certain laws that limits the number of members to four. For single-member funds: The corporate trustee can have one or two directors. Each member of the fund must be a director of the corporate trustee. Directors must have a director ID. A member cannot be an employee of another member unless they are relatives. Fund assets are registered under the name of the established company.

 What are the differences in costs?

Choosing between the two structures must also factor in the costs related to each. Here are the differences in the costs you will have to prepare for in each structure:

Structure type	Costs
Individual trustee	SMSF Establishment fees - $500 to $600 Setting up an individual trustee does not involve fees. Ongoing fees and operation costs depend on the fund’s activities.
Corporate trustee	SMSF Establishment fee - $500 to $600 Corporate Registration Fee - $800 to $1,000 Australian Securities & Investments Commission (ASIC) Annual Review Fee (SMSF special purpose trustee company) - $59 Ongoing fees and operation costs depend on the fund’s activities.

Difference in ownership and separation of assets

The two structure also have their distinct rules regarding the ownership and separation of assets.

Structure type	Asset ownership and separation
Individual trustee	If an individual trustee is removed or another added, you must change the titles of the SMSF's assets. This can be costly and time-consuming. State government authorities may charge a fee for title changes. Most financial institutions also charge a fee for title changes. Fund assets must be in the fund's name. Fund assets must not be combined with personal assets.
Corporate trustee	Recording and registering assets can be simpler, particularly for changes in membership. When a person starts or stops being a member of the SMSF, they become, or cease to be, a director of the corporate trustee. You must notify us and ASIC of any change in director. The corporate trustee doesn't change, so the titles of the SMSF’s assets are unchanged. Fund assets must be in the fund's name. Fund assets must not be combined with director's personal assets. Companies have limited liability, so a corporate trustee offers greater protection if the trustee is sued for damages.

What are the advantages and disadvantages of both trustee structures?

Depending on the circumstances, each of the structures has its own set of benefits and advantages over the other.

Benefits of an individual trustee structure

• An individual trustee structure is relatively cheaper to setup and run compared to a corporate structure, which requires separate fees from the ASIC.

• A fund that has an individual trustee structure do not need to abide by additional regulations that most companies under a corporate structure follow.

Downsides of an individual trustee structure

• It is more tedious to add or remove members, as this would also involve changing the ownership of assets.

• In cases of administrative breaches, ATO applies penalties to each individual trustee.

• Trust declarations are required for property transactions.

• Problems in succession could arise given

Benefits of a corporate trustee structure

• Adding and removing members are easier and more cost-effective.

• There are no changes in the ownership of assets whenever there is a change in membership.

• A corporate trustee structure allows you to manage your SMSF by yourself.

• In the event of the death or incapacity of a member, there is more certainty on succession planning. Any remaining member can stay as the sole director of the trustee company.

Downsides of a corporate trustee structure

• More costs are involved given the need for an establishment of a company to act as a trustee.

• The SMSF will have to abide by additional laws, particularly those concerning corporations.

Which trustee structure is for you?

Your SMSF’s trustee structure will dictate how it would be controlled and managed as you save for your retirement. Your option must align with your financial goals and overall strategy.

To know which of the two trustee structures is right for you, you will need to discuss these questions with the other SMSF members and adviser:

1. Have you done enough research on the associated costs and regulatory implications of each of trustee structure?

2. Which asset types are included in your SMSF investing strategy? Are you aware of which asset types would work best for both structures?

3. What are the possible succession scenarios should one of the trustees leave or incapacitated?

4. What protections do you have in place for existing assets?

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