Company trustee can save angst when it comes to the crunch
When an SMSF is established there is a choice between having the members act as individual trustees or to appoint a company, with them being the shareholders and directors.
The decision was often made for the individuals to act as trustees to save money. The extra cost of having a company is about $800, but this price can change depending on who is used to set it up. There is also an annual lodgment fee of $42 a year.
Where individuals act as trustees, and one of them dies, the remaining member has a choice of the following:
Wind up the fund and pay out all of the benefits or roll them into an industry or commercial fund.
Choose to become a small APRA fund and pay for a trustee company to take over as trustee.
Find another person to become a trustee to replace the deceased.
Appoint a company to take over as trustee.
Converting an SMSF to a small APRA fund can be difficult, depending on the investments held by the SMSF.
In addition, as small APRA funds have a commercial trustee company acting as trustee for the fund, the administration costs for the SMSF increases dramatically.
Finding an individual to act as trustee, such as a son or daughter, can create other problems. This is because the other trustee must be available to sign all administration and investment documentation.
After the new trustee has been appointed, the name that all of the investments are held in has to be changed.
When an SMSF is set up with a company acting as trustee from the start, nothing needs to happen. This is because under the superannuation regulations the only time you can have a single-member trustee of a SMSF is when the trustee is a company and the member is a director of the trustee company.
When one of the member trustees dies, this leaves the company with one member director.
If you have set up your SMSF with individual trustees, it can be worth the initial cost and administrative burden to have a company take over as trustee now.
This will mean that the cost and administrative burden when a member dies is avoided at a time when this is the last thing that the surviving member wants to think about.
In addition to the benefits of having a company when a member dies, having a company act as trustee from the start be an advantage for these reasons:
When there is only one member. If a company is not used, another person must be found to be a trustee. This means whenever super fund documentation needs to be signed, the other non-active member must be available.
Having a company act as trustee makes it easier to differentiate between personally held investments and superannuation investments. In addition, having a company with a short name makes it easier when filling out applications and other documentation when buying investments.
If you are thinking about having a SMSF, you should give careful consideration to having a company act as trustee. If you have individual trustees now, you should carefully consider appointing a company to replace you.
Frequently Asked Questions about this Article…
A company trustee is a corporate entity appointed to act as the trustee of the SMSF, with the SMSF members usually being the company's directors and shareholders. Individual trustees are the members themselves acting personally as trustees. A company trustee provides continuity and a single corporate name for holding investments, while individual trustees avoid the upfront company set-up cost but can create admin headaches if a member dies or is unavailable to sign paperwork.
According to the article, the extra initial cost to set up a company trustee is about $800 (varies by provider) and there is typically an annual company lodgment fee of around $42 a year. Actual costs can change depending on who sets up the company and any additional administrative services you use.
If the SMSF has individual trustees and one dies, the remaining member generally has several options: wind up the fund and pay out or roll the benefits into an industry/commercial fund; convert the SMSF to a small APRA fund and pay for a trustee company; find another person to act as a trustee; or appoint a company to take over as trustee. Each option has implications for costs, administration and the investments held.
If a company trustee is in place from the start, there is no need to change the legal ownership details of investments when a member dies, and the super regulations allow a single-member arrangement only when the trustee is a company. That continuity avoids urgent, potentially costly administration at a time when the surviving member is dealing with grief.
Yes. Converting to a small APRA fund can be difficult depending on the investments your SMSF holds, and administration costs usually increase significantly because a commercial trustee company and APRA-style requirements are involved. It can be costly and complex compared with having a company trustee from the outset.
Appointing another person (for example a son or daughter) as a trustee can create practical issues because the other trustee must be available to sign administration and investment documentation. After appointment, you may also need to change the registered name on investment holdings, which adds administrative work.
A company trustee is particularly helpful if your fund has only one active member, because it avoids the need to find another trustee whenever documents need signing. It also makes it easier to separate superannuation investments from personal assets, and a short company name can simplify filling out application forms and investment paperwork.
The article suggests it can be worth paying the initial set-up cost and administrative burden to appoint a company trustee while you can plan ahead. Doing so can avoid higher costs and stressful administration if a member dies, and it provides ongoing practical benefits such as continuity and easier paperwork.
Call 1300 880 160
Start a chat
Schedule a call
