SMSF Trustee
When an SMSF is established, it is a requirement that the fund has a trustee who is responsible for running the fund and ensuring it complies with superannuation regulations.
Managing an SMSF comes with greater responsibility and understanding the roles, obligations, benefits, and disadvantages of SMSF trustees is important.
This blog post will analyse the different trustee options, the obligations for each trustee type and the benefits and disadvantages of each option.
Trustee Options for SMSFs
There are two main types of trustees for an SMSF:
1) Individual Trustee
2) Corporate Trustee
Individual Trustee
An individual SMSF trustee is a person who is responsible for managing the fund. An SMSF with individual trustees needs to have a minimum of two and a maximum of six trustees. Each member of the SMSF must also be a trustee, and each trustee must be a member of the SMSF. This helps to ensure that the interests of the members are aligned with the responsibilities of managing the fund.
Corporate Trustee
A corporate trustee involves setting up a company to act as the trustee of the SMSF. The SMSF members are the directors of the corporate trustee. There must be at least one director of the corporate trustee.
Corporate trustees may offer more flexibility and protection compared to an individual trustee structure.
Obligations of SMSF Trustees
For both trustee options, all trustees must comply with a range of legal and regulatory obligations to ensure the SMSF is compliant. The common obligations for trustees include:
1) Acting in the best interest of members: Trustees must always act in the best financial interest of all SMSF members. The SMSF must also be run for the sole purpose of providing retirement benefits for the members.
2) Compliance with the rules: Trustees must ensure the SMSF complies with all relevant laws and regulations, including the SIS act.
3) Record keeping: Keeping accurate and detailed records of the SMSF operations, including financial statements and minutes.
4) Lodging annual tax returns: The trustees must lodge an annual tax return for the SMSF.
5) Investment strategy: The trustees must prepare and implement a strategy that reflects the retirement goals and takes into consideration the risk tolerance of the members and diversification.
6) Admin duties: The trustees will need to manage admin tasks, such as maintaining records of the fund’s assets, transactions, and bank account.
Additionally, trustees are expected to keep up to date with any changes in the superannuation laws or regulations that might affect the SMSF. Failure to stay informed can lead to penalties or compliance issues, making it essential for the trustees to remain proactive about their duties.
Benefits of Each Trustee Type
Individual Trustee
1) Cost effective setup: Setting up an SMSF with an individual trustee may incur lower initial and ongoing costs compared to establishing a corporate trustee
Corporate Trustee
1) Asset protection: A corporate trustee may provide better asset protection as the fund’s assets are held separately from the member’s personal assets.
2) Succession Planning: Corporate trustees can offer easier succession planning. In the event of a member’s death or incapacity, the corporate structure allows for an easier appointment of new directors
3) Flexibility in member changes: The corporate structure can easily allow for changes in members, including the addition and removal of members.
Disadvantages of Each Trustee Type
Individual
1) Member changes: Adding or removing members from the fund may require updating the trust deed
Corporate
1) Higher costs: Establishing and maintaining a corporate trustee requires additional costs including ASIC fees and costs associated with maintaining the corporate structure.
Insurance Considerations for SMSF Trustees
When establishing and managing an SMSF, trustees must also consider the role of the insurance within the fund. SMSF trustees are responsible for the financial well-being of the fund’s members, and part of this responsibility involves assessing the need for insurance coverage.
Why Insurance Matters in SMSFs
Superannuation regulations require trustees to consider the insurance needs of members. While it’s not mandatory to hold insurance within an SMSF, it is important for trustees to document their decision-making process regarding insurance. This ensures that trustees have actively considered whether or not insurance is necessary to protect the financial interests of the fund’s members.
For many SMSF members, insurance can provide financial protection in the event of unexpected life circumstances. Holding insurance within the SMSF can also offer tax advantages, as premiums for certain types of insurance may be tax-deductible to the fund.
Making the Trustee Decision
Choosing the appropriate trustee structure for an SMSF depends on various factors, including the size and complexity of the fund, the need for flexibility, costs and the need for asset protection.
Deciding between individual and corporate trustee is a decision that will impact the management, compliance, and overall effectiveness of the fund. Understanding the obligations, benefits, and disadvantages of both options is important for making an informed decision that aligns with the goals and personal circumstances of the individuals.
Whether an individual or corporate trustee is selected, staying informed and compliant with SMSF rules is the key to successfully managing an SMSF.
After working as an advisor for a decade, Joel founded Unified Wealth.
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