Choosing between an individual and a corporate trustee is an important decision that arises when establishing an SMSF.
Despite this decision's significance, many SMSF members often appoint trustees without understanding the difference between the two.
It is important for SMSF members to understand the advantages and disadvantages of appointing an individual or corporate trustee. Although appointing an individual trustee is considered to be the cheap and easier option (that many SMSF members choose), this option can often prove to be a false economy.
Here are some of the benefits SMSF members can enjoy when choosing a corporate trustee.
No immediate problems will arise if there is a death of a member in a fund with a corporate trustee. This differs from when an individual trustee dies since immediate action needs to be taken to ensure that the individual trustee's SMSF doesn't lose its tax concessional status. Having a corporate trustee also helps when handling member incapacity or divorce situations.
The admittance of new members to the fund (such as children) and the acquisition or disposal of assets is much simpler with a corporate trustee. The legal ownership of the fund's assets also doesn't need to be changed every time a member joins or leaves the fund.
Only one penalty applies to a fund with a corporate trustee under the new penalty regime for SMSF's. Individual trustees are penalised personally, and since there cannot be less than two individual trustees in an SMSF, an SMSF with individual trustees receives at least double the penalty rate.