Should I choose a corporate trustee or an individual to control my SMSF?
In the second video of our series examining the five key self-managed super fund (SMSF) estate matters you must talk to your client about, Lawyer Marie Mitilineos look at the control of an SMSF and why giving control to a corporate trustee rather than an individual can assist with succession and asset protection.
The control of a self managed super fund is exercised by the trustee of the fund as appointed by the terms of the deed. The Trustee can be an individual or a corporate trustee however, clients should be encouraged to use a corporate trustee on the basis they make succession easier, provide a clear separation of assets, reduced penalties and give greater protection for directors and shareholders.
The corporate trustee should only act as trustee for the self managed super fund, to avoid any confusion in relation to the ownership of assets. Using the example of real estate, a corporate trustee acting on behalf of both a self managed super fund and a discretionary trust will appear as the registered proprietor on title. Determining which trust this real estate is held on behalf of is not clear on face value and will require further investigation and clarification if sufficient records are not kept.
It is dangerous to assume a member’s legal personal representative will take control of the self managed super fund, as superannuation law does not automatically require a legal personal representative to become a trustee in place of the deceased person.
Making sure control passes with the intended beneficiary is the key. Ensuring the shares in the corporate trustee pass to the people that are intended to have control is the starting point.
When using a corporate trustee, this means leaving the shares in the trustee company directly to the intended beneficiary, under the member’s Will. Given the corporate trustee survives death they are the better and safer solution.
In the classic case of a blended family, where the benefits of the first to die are intended to pass to their children from their first marriage, some useful strategies include ensuring:
- a binding death benefit nomination is in place and complies with the requirements of the fund;
- a child (assuming they are adult) or an independent person is appointed as a director and becomes a shareholder, to be involved in any decision making and act as a check and balance; and
- the same person is also involved in, or required to provide consent to, the appointment and removal of trustees.
Other options to help avoid disputes can include:
- having separate funds, which then allows for control and benefits to be dealt with independently; and
- narrowing the class of potential beneficiaries in a deed to a specific individual or individuals (which can remove the discretion issue where the wrong person has control and there is no death benefit nomination).
Please contact us to discuss the most appropriate options and arrangements for your circumstances.
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In this video series, our Private Clients team examines the five key self-managed super fund (SMSF) estate matters you must talk to your client about.