When you're setting up an SMSF there are some fundamental decisions that need to be made before you even get started. These will affect the way the super fund is run, the powers that it has, and the administrative ease with which changes to the structure can be made. So its not just, 'what should we call our fund'. One of the biggest decisions you make at this stage is whether to have individual or corporate trustees. Unfortunately there is a sizable cost disparity between the two options and I think all too often this initial cost saving becomes the dominant reason for the decision.
The choice to have individual trustees is an interesting one. It is perhaps made because the benefits of a corporate trustee are unknown or poorly understood and so the price seems exorbitant. Without going into lots of detail, the main benefits of a corporate trustee are:
- Have wider powers in relation to the payment of benefits (although the ATO doesn't appear to be concerned with enforcing this)
- Have clearer separation of Super assets from Personal assets (important at the best of times but particularly if you ever find yourself in financial trouble)
- Remain constant throughout times of change (members may come and go, but the trustee does not)
- Allows for single member funds without third parties
The disadvantages of a corporate trustee could be seen as:
- Higher initial cost setting up the fund (generally between $400-$800 more)
- Ongoing need to notify ASIC of changes (although this is free is done within the speficified time periods) and the annual ASIC return (usually just requires a minute to be signed)
- Ongoing annual cost ($43 although some Accountants will charge a standard fee of $220)
Of all these points, the one that cannot be overstated, is the ability of the corporate trustee to remain constant throughout the life of the fund. The reason for its importance is that with individual trustees, changes to the membership of the fund will cause an avalanche of administration because the name/title of every asset held by the fund will need to be changed. Unfortunately, for a SMSF this will often occur at a time when the remaining member/s are already struggling with the death of a partner, a divorce, a business relationship breakdown etc. At that sort of time, you just don't need the hassle. Pay someone else to deal with it for you, and any money saved at set up is likely to be insignificant next to the cost of administration services. It can easily take 2-3 months to get everything sorted out. Compare this with a corporate trustee, where you change the signatory details on the SMSF bank account, and notify ASIC of a change of director.
There are of course other tasks that need to be done if a member dies or leaves the fund. However these are common to both types of trustee and so don't offer any point of differentiation upon which to make a decision.
So while having a corporate trustee will cost more at the setup of your SMSF, don't dismiss it until to think carefully about the full picture across the life of a fund.