Around 70 per cent of self-managed super funds (SMSFs) are set up with individual trustees as it is a cheaper option, but this eventually transpires as a false economy, law firm Holley Nethercote argued.
Partner at the commercial and financial services law firm, David Court, said he, like most professional advisers, recommended that SMSFs should have a corporate trustee instead of an individual trustee for various reasons, including ease of administration, and succession flexibility.
“Unlike people, companies do not die and the death of a member in a fund with a corporate trustee causes no immediate problems. However, when an individual trustee dies, action needs to be taken to ensure that the SMSF does not lose its tax concessional status,” Court said.
“There have been a number of court cases in recent years involving disputes arising from the death of a member which would have been less likely to arise if a corporate trustee was used.”
Having a corporate trustee is also a must if a SMSF wants to use limited recourse borrowing arrangements as a lending bank will want the fund to have a corporate trustee.
Court also argued companies had limited liability and offered better protection if SMSFs became insolvent as directors would not be held responsible for a company’s debt.
Corporate trustees also have the flexibility to pay benefits in either lump sum or pension form but individual trustees must have a primary reason for paying pensions, which limits their ability to convert a pension to a lump sum at a later time.
Court recommended that a sole purpose company act as an SMSF trustee as this draws a lower annual ASIC fee and keeps the SMSF separate from other business affairs.
