Superannuation

Reader’s question: My wife and I are individual trustees of our do-it-yourself super fund. I’ve noted comments regarding a corporate trustee being preferable, and plan to take up that suggestion. What is likely to be involved?

Also, are there reasons why the company through which I run a small management consultancy should not also be appointed trustee of our super fund? This would save the bother and expense of setting up a company solely for this purpose but, obviously, it’s only of interest if there are not significant disadvantages.

While having individual trustees is the easiest and most cost-efficient method for establishing and administering a DIY fund, there are benefits to using a corporate trustee, says Chris Balalovski, head of strategic advice at Perpetual Private Wealth.

Smoother changes

If ever there is a need to add or remove a trustee – such as on the death of a member – it avoids the necessity of having to advise asset registries of the change in ownership of the investments.

All super investments must at all times be held in the name of the trustee or trustees. Under a corporate trustee arrangement, fund investments remain in the name of the company – even when the identity of the members of the fund or directors of the company changes.

Perpetual succession

A feature of companies is perpetual succession, which means they can continue indefinitely. This can provide additional certainty over control of the fund in the event of the death or incapacity of its members. Under a corporate trustee you can have a sole-member DIY fund, avoiding any need to appoint another individual trustee to become involved in the fund’s decisions.

That said, changing from individual trustees to a corporate trustee will require amendments to the DIY fund’s trust deed, followed by the fund trustees then having to advise all relevant banks, brokers, share registries and titles offices of the new corporate ownership.

Costly business

The main reason there are more individual trustee-run funds is because of the establishment and ongoing costs of having a corporate trustee. It costs money to set up a company, with the major expense a $426 fee (as at November 2011) to the Australian Securities and Investments Commission. There are also costs in tax returns to be prepared each year and annual fees to ASIC.

One choice you have, which can keep the annual ASIC cost to $42, is setting up a special-purpose company that acts only as a DIY fund trustee.

An existing company

Although there’s no prohibition on an existing company that is carrying on some other activity acting as the trustee of a super fund, doing so may present some problems.

If the company is subject to litigation, all its assets may be exposed. If the company is sued as a DIY trustee because, for instance, a tradesman working on a fund-owned property has an accident, then other company-owned assets may be vulnerable.

As a result, it is advisable to have a “clean-skin” company that conducts no other activities nor holds any other assets act as the trustee. Compare this with having individual trustees, who could find their personal assets exposed in litigation.