In good company: the best choice for a self-managed fund's trustee

In addition to the benefits of having a company act as trustee when a member dies, a recent case heard by the Administrative Appeals Tribunal highlights another important benefit.

The case involved a husband and wife who acted as trustees for their self-managed super fund. The husband and wife split up and the husband illegally withdrew almost $3.5 million from the fund, transferring it overseas.

The Tax Office fined the trustees about $1.6 million. As the fund had no assets, the Tax Office pursued the wife as the only remaining trustee. The tribunal decided that the wife was personally liable.

This is an isolated and rare case but underlines an important fact when acting as an individual trustee for a super fund. When something goes wrong, whether it is an action brought by a regulator such as the Tax Office or there is a legal claim for damages, the personal assets of the individual trustee are at risk.

Appointing a company to act as trustee for a superannuation fund is like taking out insurance. If something goes wrong, the individual members of the fund receive protection by having a company as the trustee. The company acts like a form of death insurance.

When a trustee member of a self-managed superannuation fund dies, the surviving trustee member can find themselves entangled in a bureaucratic nightmare.

The first thing that must be done is to decide whether to find another member that will act as a trustee of the super fund. This is because a self-managed super fund must have at least two individuals acting as member trustees.

If no one can be found to take on the position of a trustee member, a decision must be made to either wind up the fund, and the benefits paid out or rolled into another superannuation fund, or to convert the fund to a small APRA fund, and appoint a professional trustee company.

If a new member is found, the names in which all of the investments in the super fund are held must be changed. The name of the deceased member must be removed and the new trustee must be included. This will not only involve providing documentary evidence of the appointment of the new trustee but also the new trustee must establish their identity.

Under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, a person must establish their identity by providing original or certified copies of identity documents for all investments. If the self-managed fund has a large number of investments, this will mean a mountain of paperwork must be completed.

If a self-managed superannuation fund has a company acting as trustee when a member dies, nothing needs to be done. The only time a self-managed superannuation fund can have a single member is when a company acts as trustee.

Because all of the investments are already in the name of the company trustee, the self-managed superannuation fund continues to operate as it always had.

Having a company act as trustee also makes it easier to clearly differentiate between personally-held investments and self-managed superannuation fund investments. In addition to the cost of incorporating the company, there is a small annual lodgement fee.