Over 80% of the approximately 500,000 self managed superannuation funds (SMSF) are set up as individual trustees. In my view, this is a mistake, however it’s not too late to fix this issue.
There are a number of issues that you may encounter in using an individual trustee structure which include asset ownership, the death or departure of a member, trust law which dictates that when a member leaves an SMSF with an individual trustee structure, the fund may cease to exist. These issues are not apparent in the Corporate Trustee structure.
The benefits of a corporate trustee include longevity, asset protection and flexibility. This is also important for SMSF borrowing to invest to create effective asset protection and potentially improve your loan to value ratio.
Its important to highlight that there is a once off cost to set up a Corporate Trustee. The fee to incorporate a Company is $444, and as a Superannuation Trustee, the annual fee is discounted to $44. This once-off fee should be considered in light of the fact that a SMSF is set up to secure your retirement and therefore it is a small price to pay to create asset protection and flexibility well into the future.
How to convert your fund?
The process is quite seamless however, its important that its undertaken by a SMSF specialist advisor as doing it yourself can be prone to error.
The Steps to change from individual trustee to corporate trustee for a Self Managed Super Fund include:
- The SMSF Trust deed needs to be reviewed to allow the resignation of individual trustees and appointment of corporate trustee, generally the trust deed is redrafted to reflect the requirements of a corporate trustee.
- The individual trustees will resign and appoint the nominated company as Trustee of the SMSF
- Create a special purpose company. When the company is set up, please ensure it is reflected as a “special purpose company” (i.e. Superannuation Trustee) to ensure you receive the discounted ASIC Fees (currently $44).
- Notify the ATO of the change in trustee of the fund from the individual to the corporate trustee
- Notify your bank of the change in structure of the fundor shares, this will depend on your broker/ platform provider, contact them and obtain advice of any changes needed
The conversion should cost you approximately $1000. Ensure you keep all of the documentation for year end audit purposes.
Ivan Filipovic is a Director at Redwood Advisory- SMSF Specialists.
The content of the blog has been prepared without taking account of the objectives, financial situation or needs of a particular individual and does not constitute financial product advice.