Terry is spot on, here are the main benefits:
1. The most important point is for asset protection
If individual members were the trustees of your self managed super fund, the legal ownership of the assets are the members. This can create some problems. How? Well let?s say that you buy a residential or commercial property inside your super fund and one of your tenants falls over and injures themselves. The tenant can turn around and sue the legal owner of the property which would be the individuals as trustees. And as individuals your personal assets, being your family home and other assets are at risk of being taken away from you. However, if you had a company acting as the trustee, the legal ownership is that of the company not the individual members. The tenant can?t sue you as a director of a trustee company.
2. Individual trustees can only pay out retirement pensions
If you have individual trustees, you can only pay out retirement pensions. If you?re intending to point pay out lump sum benefits, death benefits, disability benefits or transition to retirement pensions, which are stand out features of a self managed super fund, you?re limited as to how you can pay these benefits out to members and beneficiaries of all members which can be very costly. You must have a corporate trustee to be able to pay out these benefits.
3. Increase individual land tax liabilities
With self managed super funds now able to borrow money to buy residential and commercial properties, property investing inside super has seen a dramatic increase. If you have individual trustees who are then the legal owners of the property, this will increase the amounts counted towards their personal land tax threshold, where as if the trustee was a company, the land tax is applied to the super fund.
4. Lower loan to value ratio?s
Whilst we?re on the topic of borrowing money to buy property in a self managed super fund, banks will lend more money to super funds with company trustees than they would to super funds with individual trustees, which means that your fund can leverage higher priced properties or require less money to invest in property.
5. Longevity
A self managed super fund is designed to allow it to run forever, unlike other trusts such as family trusts that have a life span of 80 years. In order for your fund to last and be passed down from one generation to another, you need a trustee that doesn?t die. The only structure that can do this is a company, so if you want your self managed super fund to last forever and to get passed down tax effectively from generation to generation, you must have a company trustee.
6. Administrative ease
All assets purchased in a self managed super fund must be purchase in the name of the trustees. The problem here is that if you have a family super fund, members come in and out of the fund. For example members die, they get married, divorced, children can come in and out of funds depending on their life stage. Every time a member enters or leaves the fund, if you have individual trustees you have to continuously change the name of the bank account, asset registers and so on. It can be extremely frustrating, time consuming and a very costly exercise. Can you imagine if your fund had 50 direct shares, exchange traded funds and property? However, if you had a company trustee you don?t have to change anything because the owner will always be the trustee company. All you have to do is add or remove directors, which is a lot less painful.
7. Estate planning
Lastly, if a member dies or becomes mentally incapacitated and the trustee is an individual, this can cause significant issues for the fund. The fund can be put in a situation where it can?t continue to operate without a trustee or pay out certain benefits if the member was as individual trustee. If you had a company trustee with multiple members you can simply remove the member as a director of the company, you can have the executor of the deceased member or a power of attorney immediately become the director and the company carries on. These are absolutely crucial factors when someone dies or loses mental capacity.
