One of the longest-term decisions many investors will make is whether to setup a self-managed super (SMSF) fund with individual trustees or a corporate trustee.

It is a decision that could have financial and personal implications for as long as the SMSF remains in existence including when a member leaves the fund and/or a new member joins.
 
Indeed, some SMSF members would not fully recognise the key differences between having individual trustees or a corporate trustee until a member dies. Of course, this consideration is particularly pertinent given the ageing of the population.

Under superannuation law, all members of an SMSF must be either individual trustees or directors of a corporate trustee of the fund. An SMSF with individual trustees must have at least two individual trustees yet a corporate trustee can have only one director.

The tax office’s latest-available SMSF annual statistical review records that 92 per cent of the SMSFs established in 2013/14 had individual trustees – a rise of two per cent over three years.

As the tax office observes, ‘there has been a consistent shift away from corporate trustees’. This could partly be attributable to some investors focusing on what may seem the easiest and most hassle-free way to setup an SMSF – perhaps without weighing-up the long-term differences between the two types of trusteeships.

Others planning an SMSF would no doubt carefully compare the features of each type of trustee – perhaps in consultation with their financial planners – and then choose the best perceived course for their circumstances.

Interestingly, 77 per cent of SMSFs in existence on 30 June 2014 had individual trustees. In other words, 33 per cent have corporate trustees against 8 per cent for new SMSFs.

A proportion of SMSFs would have begun with individual trustees and later switched to a corporate trustee, perhaps after the death of a member.

The tax office, as regulator of self-managed super, urges would-be SMSF members to understand the differences between the two types of trustees. It could be worthwhile gaining advice about the issue from an SMSF specialist.

On one hand, individual trustees – with each member acting as a trustee – can cost less to establish because a company is not setup to act as a trustee. However, the ATO points out that there are other considerations apart from initial cost.

An SMSF with individual trustees must hold its assets in the name of all those individuals as trustees of the fund. If an individual trustee is replaced, the names on the funds’ ownership documents must also change. ‘This can be costly and time consuming,’ the tax office warns.

By contrast with a corporate trustee, assets are held in the name of a company as trustee. If trustee directors change, the assets remain in the name of the same company.

If a fund has two individual trustees and one dies, the fund must appoint another trustee to continue as an SMSF. (This is because of the requirement that a fund must have at least two individual trustees.) Yet if an SMSF has a corporate trustee, a deceased trustee director may not have to be replaced because a corporate trustee can have a single director.

In other words, a corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member.

To find out more about establishing an SMSF or to discuss your current SMSF trusteeship, speak with your Leenane Templeton financial planner on 02 4926 2300

The post An SMSF trustee decision for the long, long haul appeared first on Newcastle Financial Planners & Financial Advisors.

1. Who should you appoint as your beneficiaries?

While you can leave your estate to pretty much anyone you like, you do need to be careful. Challenges against a Will often occur when people feel they haven’t been provided for fairly. If you think your Will is likely to be challenged, you may want to leave a letter of wishes. This is an additional document explaining why the Will has been drafted in the manner chosen and can be referred to when a claim is being defended.

2. What assets do you want your beneficiaries to receive?

While some people feel the need to specifically gift every asset they own, a lengthy list of gifts is usually not encouraged. Assets held at the time of making your Will (and their value) may differ significantly from the assets owned at the time of death. It can therefore be a good idea to only gift a small number of specific assets in your Will and assign a percentage of the remainder of the estate to each beneficiary.

3. Who should you appoint as your executor?

Your executor is responsible for a range of tasks, such as locating the Will, organising the funeral, arranging probate, collecting the assets, repaying debts and distributing the assets. When choosing your executor, make sure you select someone who is trustworthy, in tune with your objectives, and capable of performing this very important role.

While some people appoint a family member as their executor, a Trustee company can be a good alternative – particularly if your Estate is complicated and/or suitable friends or family are not available. A Trustee company provides expert administration and legal services and charges a fee, typically paid from your Estate, after your death.

4. Should you establish a testamentary trust?

A testamentary trust is a special type of trust that comes into effect upon your death, if you have included specific provisions in your Will. Because the Trustee owns and controls the assets, your estate can be protected from a number of potential risks and your beneficiaries can be provided for in a tax-effective manner.

Naturally everyone’s situation is different and we recommend you speak to one of our Financial Adviser's to find out more.

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