Two-share corporate trustee set-up flawed

Two shares corporate trustee

Trustees and advisers should consider issuing more than two shares in an SMSF corporate trustee to allow the fund to operate more efficiently.

The head of a chartered accounting firm has recommended advisers and trustees avoid an SMSF structure where a corporate trustee is established and only two shares are issued from the controlling company so as to avoid general operational and estate planning complications.

“In the past it was common, if there was a corporate trustee, for there to be two shares issued – one share to mum and one share to dad. I’ve come to the realisation over the years if you’re trying to have succession of control of that entity, perhaps when you establish it and incorporate it in the first place, maybe you consider issuing 360 shares,” Arithmos founder Loreena Gillon told attendees at The Tax Summit hosted by The Tax Institute in Sydney last week.

“Three hundred and sixty is my magic number because it is perfectly divisible by [most of the numbers of members an SMSF will house].

“So, if you’ve got six people in your SMSF and you want those people to have equal control, then [360 shares will allow] each member to have 60 shares in the corporate trustee.”

According to Gillon, the same principle will make the distribution of death benefits significantly easier as well, enabling the principle of absolute entitlement to be satisfied.

“If you’ve got a corporate trustee with just two shares, and let’s say mum and dad have died and you’ve got four kids, [it means] they haven’t got absolute entitlement of the shares of the corporate trustee because you can’t split two shares between four kids,” she noted.

“But if you do have 360 shares and you’ve got four kids, each child can receive 90 shares [of the corporate trustee] and they can be all treated equally.

“You can’t do that with two shares. So 360 is a good number [of shares to be issued by an SMSF corporate trustee].”

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