Dealing with a Change of SMSF Trustee
There may be certain circumstances whereby you need to change the trustee of your SMSF and winding up the SMSF may be a costly exercise and best to keep it running. This could be due to a loss of mental capacity of one of the trustees, a trustee has passed away, you travel overseas or as simple as losing interest in running your fund.
The replacement of the Trustee, like all other dealings with an SMSF, are governed by the fund’s Trust Deed, and the need to operate within the laws outlined in the Superannuation Industry (Supervision) Act (SIS Act). Under the SIS Act, all members must be trustees, either as an individual trustee or director of a corporate trustee. It must be noted that under an individual trustee structure, you must have at least two individual trustees at one time, an SMSF can’t operate with a sole individual trustee, but it can operate with a sole director of a corporate trustee.
Loss of Capacity:
If a member of the SMSF loses capacity they are then unable to be an SMSF Trustee. In this case, it is possible for them to be replaced by their legal personal representative or someone who has been granted an enduring Power of Attorney. It is paramount that all members and Trustees of an SMSF have an appropriate Power of Attorney in place to ensure that in the event of loss of capacity, someone will be able to step into their shoes and take-over their role as Trustee.
Loss of Interest:
There is the chance that you as trustee may lose interest in your fund, which could be due to age, and winding up the SMSF may be very costly and therefore best to keep going. Again, with an appropriate Power of Attorney in place, someone can step in and take over your role as trustee of the fund.
Going Overseas:
All Super Fund’s must undergo the “residency test”, with one of the tests requiring that important decisions about the fund are to be made in Australia, i.e. the trustees must be in Australia to make the decisions. Generally speaking, temporary absences of up to two years is permissible, with anything longer than this, the trustee may need to be replaced Once you return, you can be reappointed, and the replacement trustee removed. If you permanently move overseas as a trustee you would need to be replaced or have the fund wound up. Once again, having an appropriate Power of Attorney in place can help to solve this issue.
Death of a trustee:
On the death of a trustee/member it is usual practice that the member’s legal personal representative, who may also be the executor of their estate, be appointed in their place but it is not compulsory. In some trust deeds the appointment of the deceased member’s legal personal representative as trustee may be required, prior to making any decisions about payment of a death benefit. The replacement trustee continues to act as trustee until payment of the member’s benefits commence. If you operate an SMSF it is worth considering who you elect as your legal personal representative and/or executor and if you think they’re up to the task of dealing with your SMSF once you pass away.
When running an SMSF it is important that you have a comprehensive and up to date Will and Powers of Attorney to ensure that in the event you can no longer operate your SMSF, someone can step-in and take-over your role. We have seen too many examples where we have had to work quickly to fix issues that may have been avoided should the right measures have already been put in place.
JBS can assist in these matters and help facilitate a review of your Estate Planning needs and also ensure you have the right structure in place for your SMSF.