The “SMSF investment strategy” concept significantly shapes investment decisions for individuals and organisations managing their super funds. The prevalence of trusts in Australia, including family, unit, and hybrid trusts (which combine features of family and unit trusts), is widely recognised. This also extends to self-managed super funds, which fall under the category of trusts and require trusteeship to establish the trust relationship.
Accountants and lawyers usually recommend using a company as the trustee for various reasons, including limited liability protection. However, companies have set up costs and ongoing annual costs.
As trusts have become more popular, it can be very common for people to have a family trust (or more than one family trust) and a self-managed super fund. Or for their family trust or self-managed superfund to invest in their unit trust.
Due to the setup and ongoing annual costs, it can be very tempting to use a single company to act as the corporate trustee for all those trusts.
For many people, their investment circumstances may allow this, however for trading trusts, it can lead to possible problems:
- Trading between trusts: difficulties can arise when multiple trusts with the same corporate trustee wish to enter into legally binding agreements with each other eg. A lease for a property, as the corporate trustee is essentially required to make a contract with themselves.
- Control of the trusts: trusts are controlled by the trustee, not the beneficiaries. In a family breakdown, one family member may control the trustee, while a different family member is the beneficiary.
- Assets of one trust to satisfy the debts of another trust can arise when a trading trust has insufficient assets to meet the trust’s debts. In this instance, the trustee is liable for any debts the trust cannot cover. However, the corporate trustee may only have assets for another trust. The creditors will often try to gain access to those assets. Generally, this is not possible, but the creditors will still try, and it is then up to the corporate trustee to prove those other assets are held for another trust.
If you are concerned about using the same corporate trustee for numerous trusts, please contact us, as a change of trustee could be a simple solution if appropriately documented.
Kreston Stanley Williamson Team
*Correct as of April 2019
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek specific advice relating to your particular circumstances. Liability is limited by a scheme approved under professional standards legislation.