An industry expert has said an SMSF held under a corporate trustee structure offers better protection for the assets of the individual directors should legal action be taken against the fund.
SuperConcepts SMSF executive manager Nicolas Ali addressed the advantages corporate funds have when protecting assets held within the fund.
“If somebody injures themselves in a property held by the individual fund, then potentially the courts will look through the assets of the fund, look at the assets of the individual trustees themselves and potentially put those up to remedy the litigious action,” Ali said.
In particular, he said the 2010 Giovenco v Dick case highlighted the minimum asset protection and legal liabilities after Giovenco’s husband passed away while attempting to fix the water system on the roof of a property held within an individual SMSF.
The widow sued the owner of the property and was awarded compensation on the basis of negligence.
“The courts went [after] those individual trustees’ assets to recompense for the loss of life,” Ali said.
“With a company as the trustee, the liability is obviously limited to the assets of the company, which is limited to the assets of the fund. Personal assets are not put up with regards to litigious action.”
In addition, he said a corporate trustee could be useful for an SMSF looking to use a limited recourse borrowing arrangement as some lenders insist on having this type of structure in place if the gearing is to be approved.
“Having a company as trustee of the fund is going to give the trustees, or the members, greater flexibility as to what they can invest in, in particular limited recourse borrowing arrangements,” he said.
However, he warned corporate trustees are not always an advantage for an SMSF.
“When it comes to civil and criminal offences, individuals pay less than a company. A company pays five times what an individual would pay,” he said.
“[Criminal and civil offences] are a rare occurrence, but it’s worthwhile to be mindful of that.”