SMSF trustees who have appointed a company to act as a trustee alongside its independent business activities have been alerted to the potential threat to their fund’s assets if that company faces legal or regulatory challenges.
In response to a query during a webinar today about how the annual Australian Securities and Investments Commission (ASIC) fee should be shared between an SMSF and a trustee company, Accurium head of education Mark Ellem raised doubts about the necessity of such an arrangement in the first instance.
“Why is a company that acts in its own right also trustee of an SMSF? Change the trustee of the SMSF to a separate company; in fact change it to a superannuation trustee company. Do not have the company that trades in its own right as trustee of an SMSF,” Ellem noted.
“That potentially gives rise to the risk that if the company’s creditors take action against it, the SMSF assets may be at risk depending on how the title of assets it holds – either in its own right or in its capacity as the trustee of the fund – are recorded.
“To me it’s simply not worth the $1500 to $2000 to have a separate superannuation trustee company.”
Additionally, he noted this arrangement was likely to breach the fundamental obligations trustees are bound by when establishing and administering an SMSF.
“There’s also the issue of directorship of the company. I’ve seen these arrangements before and on one occasion the accountant for the company that trades in its own right removed the wife as a director of the company and left the husband as the sole director, and this was because it was a trading company and it was done for asset protection purposes,” he said.
“The problem was that the company was also the trustee of the SMSF and both the husband and the wife were members of the fund and we know the basic conditions to be an SMSF – all members must be trustees or in this case directors of the corporate trustee.
“So if the wife was removed as the director of the company for asset protection purposes, from the perspective of the company trading in its own right, we’ve now got a scenario where the SMSF doesn’t comply with the basic conditions of [establishing an SMSF] because both members aren’t directors of the corporate trustee.”
To that end, he suggested the simplest course of action was to ensure the management of an SMSF was overseen by either a trustee acting in its own capacity or a corporate trustee.
“Change the trustee, remove the company that is trading in its own right as trustee of the fund and have a separate company that does nothing but act as trustee and you can get a superannuation trustee company with reduced ongoing annual ASIC fees,” he said.