Trustee Structure (Corporate v Natural Person Trustees)

The number of SMSFs with natural person (member) trustees is much greater than those with corporate trustees and this trend appears to have been increasing in recent years. As at 30 June 2009, around 29 per cent of all SMSFs had a corporate trustee. However, for the 2008 and 2009 financial years, nearly 90 per cent of new SMSFs were established without a corporate trustee.¹⁷

The Panel and various stakeholders have expressed their surprise at this trend in various consultations and submissions. It is widely accepted by professionals and the ATO that a corporate trustee is superior. Some of these benefits, outlined in submissions, include:

• perpetual succession — the corporate entity cannot die, so it enables better control in the event of member death or incapacity;
• greater administrative efficiency;
• greater flexibility to pay benefits as lump sums or pensions;
• greater estate planning flexibility;¹⁸ and
• reduced risk of deliberate or accidental intermingling of fund and personal assets, in breach of the covenant in section 52(2)(d) of the SIS Act.¹⁹

The trend towards individual member trustees could be due to limited advice or understanding of the benefits and the higher establishment costs of the corporate trustee option over the member trustee option.

Some submissions, recognising the benefits of corporate trustees, supported the use of a sole purpose corporate trustee (SPCT).²⁰  One submission recommended that the ASIC company registration fee be reduced to $100 and the $40 ASIC annual review fee be removed.²¹ A number of submissions also suggested that all SMSFs should be required to have a corporate trustee.²²

The Panel is attracted to the potential benefits provided by the corporate trustee structure and is concerned about the large proportion of new SMSFs choosing not to use a corporate trustee. However, consistent with principle 2 regarding freedom from intervention, the Panel believes that the solution here is a better standard of advice, an aim which is addressed by other recommendations. The Panel therefore does not intend recommending any change on this issue.