One of the key steps in setting up an self-managed superannuation fund is deciding who.
ONE of the key steps in setting up an self-managed superannuation fund is deciding who will act as trustee.
Tax Office data shows 73 per cent of SMSFs have individual trustees.
The alternative is having a company act as trustee. Although this more expensive, it should be the preferred option.
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 SMSF. The couple split up and the husband illegally withdrew almost $3.5 million from the super fund and transferred 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 AAT decided that the wife was personally liable.
This is a rare case but it is a good example of 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 super fund is like taking out insurance. If something goes wrong, the individual members of the fund receive protection by having the trustee company.
The major benefit of the trustee company for a self-managed super fund is that it acts like death insurance. When a trustee member of an SMSF dies, the surviving trustee member can become entangled in a bureaucratic nightmare. The first thing that must be done is find another member to act as a trustee of the fund (this is because a self-managed fund must have at least two individuals as member trustees), or, 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 the self-managed super fund converted to a small APRA fund and a professional trustee company appointed.
If a new member is found, the names in which all the investments in the super fund are held must be changed, first, to remove the name of the deceased member and, second, to include the name of the new trustee. 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. Where an SMSF has a large number of investments, this will involve a mountain of paperwork.
If an SMSF has a company as trustee when a member dies, nothing need happen.
The only time an SMSF can have a single member is when a company acts as trustee. Because all the investments are already in the name of the company trustee, the SMSF continues to operate as it always has.
Having a company as trustee also makes it easier to differentiate between personally held investments and SMSF investments. In addition to the cost of incorporating the company, a small annual lodgment fee applies.