The main attraction of being a trustee in your individual capacity is the lower cost, since there no need to establish the corporate entity to act as trustee for your fund. 

However, there are some drawbacks. 

Recently a case at the Administrative Appeals Tribunal (AAT) involved a husband and wife who acted as individual trustees for their SMSF.  The couple split up and the husband illegally withdrew almost $3.5 million dollars from their super fund and transferred it overseas. The tax office fined the trustees around $1.6 million dollars for breach of legislation. As the fund had no assets, the tax office pursued the wife as the only remaining trustee and the AAT decided that the wife was personally liable for those fines.

While this is a rare case, it does serve as a reminder to those considering acting as trustees in their individual capacity about the potential liabilities involved.

Appointing a company to act as trustee for a SMSF can protect the individual members of the fund against the risks of becoming personally liable for debts of the fund.

It is important to remember that a SMSF must have two individuals acting as trustees, or have a corporate trustee. If one of those individual trustees dies, then the survivor has to either appoint another individual as trustee, which sometimes is not an easy decision, or alternatively put in place a corporate trustee. If you do not have a corporate trustee, all this has to occur quickly and at a difficult time for the surviving trustee.

Having a corporate trustee also clearly delineates the super fund assets from the personal assets of the members. Legislation requires an SMSF to clearly identify assets as being owned by the super fund, and not mixed with the personal assets of members or trustees.

So which is better – corporate or individual trustee?  It comes down to the choice of the members, but when you factor in the ramifications of breaching SMSF legislation, corporate trustees offer greater peace of mind and security.