How to Choose a Co-Trustee for Your SMSF


With the seemingly endless regulations surrounding the operation of a SMSF, choosing a co-trustee is another important aspect for consideration when setting up a fund or when the need arises to change a trustee, as a result of divorce, incapacity or death. A co-trustee is not simply a person you engage to “please sign here”, but someone who also has legal and regulatory obligations that must be met.

The terms of your fund’s trust deed effectively sets out what you can do for and on behalf of your SMSF, whether that is setting minimum requirements, maximum requirements or a combination of both. A trustee is responsible for ensuring that the fund meets its legal and regulatory responsibilities.

When it comes to choosing a trustee for the running of your SMSF, it can sometimes feel like you do not have any choice as superannuation law states that all members must be trustees and all trustees must be members. There are however a few important exceptions to this and for most, it will be around single member funds. As a single member fund, your trustee decisions are determined by whether you set up an individual or corporate trustee structure.

If you elect to set up an individual trustee structure, and you are the only member, you are required to have a second individual trustee. Who you choose becomes one of the most important decisions you will make. For a corporate trustee structure in a single member fund, you remain the sole director or you can choose to appoint a second director. As a single director though, you make all the decisions. In this case, you also need to consider how the Fund will operate in the event of your incapacity or death. You need to consider how your benefits can be paid and how the investments of the fund can be managed.

A binding nomination works to direct trustees as to what must be done in the event of the death of a member. However, if you were to die as a single director corporate trustee, what will happen then? Who has the authority to appoint a replacement director and who will own the shares in the corporate trustee? Whilst this often flows through to your will, it can result in significant delays in paying out your benefits to your dependents.

For many, choosing a co-trustee comes down to the trust and confidence you have in the other trustee as well as their ability to carry out their role. It is important to remember though that each trustee is liable for the actions of the other trustee.

Choosing a co-trustee is not something that should be taken lightly. If you would like more information on setting up a SMSF or to check that your fund will operate the way you want it to, then please contact us. It could save you and your family a lot of heartache in the future.