Individual or Corporate Trustee – What’s the Ideal SMSF Option for You?

What makes SMFSs the frontrunners in retirement schemes is the fact that they let members have complete control over their finances. Nevertheless, they also come with great responsibility as every trustee is essentially accountable for all the decisions made and the fact whether everything is done as regulated by ATO.

Considering an SMSF is such an important investment, it takes a lot of learning beforehand. One of the first questions that people have before setting up an SMSF is whether they should opt for an individual or corporate trustee. Their final decision very much depends not only on their personal preferences, but also on their budget and whether they fulfil all the conditions that a trust structure requires. Let’s take a look at how these two structures differ from each other.

It’s estimated that the most common type of SMSF structure is the individual trustee, leading with 65% of the total number of SMSFs. It might be so attractive due to the fact that setting up an SMSF with individual trustees is fast and inexpensive. Appointing trustees has no additional costs of setting up a company, there are less ongoing annual fees, and you don’t have to deal with a lot of paperwork. Individual trustee SMSFs also don’t need to do a lot of reporting to ATO, unlike corporate ones. However, one of the negative sides of this fund is that it’s not very welcoming to changes in members. Whenever someone comes or goes, you’ll need to change the title of the SMSF’s assets which could cost you a lot of money and time.

But if you are the only person wanting to set up an SMSF, a company trustee may be your only viable option because the law does not allow a fund with a single trustee. However, two, three and four member funds sometimes also choose this option, especially if they want more flexibility in their membership. An SMSF corporate trustee structure can add or remove a member with less hassle as opposed to an individual structure. Whenever a member joins or leaves, you are not required to change the name on the ownership documents because the fund is registered under the corporate trustee. Even ATO advices that the easiest way to deal with a fluctuating membership is for the fund to have an SMSF corporate trustee.

This type of SMSF is also more suitable in cases when you’re looking to borrow or purchase property because most banks will trust more a separate and recognized legal entity as the one responsible for the fund. However, the reason why the majority of people don’t go for a corporate trustee is due to the fact that registering a company can be quite an expensive step. How quickly a company can be established may also play an important role.

In order to make the right choice, you’ll need to think in advance about how your fund’s membership structure will vary throughout the years so you are not disappointed with your choice when changes have to be made.