An SMSF technical specialist has reminded practitioners and trustees while there is a requirement that all members must be directors of the company established to act as the corporate trustee of the fund, there is no stipulation as to who the shareholders of that entity must be.
“The SMSF definition is silent on that point. It doesn’t say who has to be shareholders,” Accurium head of SMSF education Mark Ellem noted.
Given this fact, Ellem recognised there is a practical solution for funds faced with this type of scenario that is often implemented.
“In practice what we might do by default is if we’ve got mum and dad as the members of the fund, then mum and dad have to be the directors of the corporate trustee and we automatically [then make them] shareholders in the [trustee] company,” he suggested.
However, he pointed out this course of action may represent a licensing breach for practitioners.
“The question to ask is should they be the shareholders and have we given them the choice? Have we asked the client and if we haven’t, are we making a financial product recommendation because that’s mum and dad acquiring shares – a financial product?” he explained.
According to Ellem, determining who the shareholders will be of the company acting as corporate trustee for an SMSF is a significant decision and may have additional implications for the fund in future years.
“[Who the shareholders end up being] might be an important part of estate planning and [fund] control. Who controls the company? The shareholders and if the company is acting as [SMSF] trustee, then that’s some power that they have, particularly if you look at [a fund with] multiple members up to a maximum of six,” he said.
“So [there is a need] to watch that in practice and if you are involved in setting up the fund, make sure the client has been asked, and considers it, regarding the shareholding and don’t just automatically say: ‘I’ll make the members, who are the directors [of the corporate trustee company], the shareholders as well.’”
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