The choice to have either individual or a corporate trustee is an important decision to make for an SMSF, however, it doesn’t need to be fixed for the life of the SMSF. The structure can be changed to suit the changing circumstances of the trustees/members.

Why change?

Reasons to change the trustee over the life of the SMSF include:

1. New members may want to join the fund (up to 6 members allowed)
2. Death of a member
3. Incapacity of a member
4. Separation of a couple

5, Bankruptcy

There may need to be a change made to the SMSF trustee structure as follows:

• From individual trustees to a corporate trustee
• From a corporate trustee to individual trustees
• Adding more individual trustees or removing/replacing individual trustees
• Adding more directors or removing/replacing directors

Meeting the definition of an SMSF at all times is essential to maintaining the complying status of a fund. Before going into the process of what happens to change the trustee, let,s revisit the current rules around trustee requirements so you can consider if any changes you may be contemplating are allowable.

To meet the definition in the legislation, an SMSF needs to meet the following conditions:

• Up to a maximum of 6 members.
• If the trustees are individuals, each individual trustee is a member of the fund.
• If the trustee is a company, each director of the company is a member of the fund.
• Each member of the fund is a trustee of the fund or if the trustee is a company, each member is a director of the company.
• No member of the fund can be an employee of another member unless the members are relatives (so there can be no unfair influence over another member).
• No individual trustee or director of the corporate trustee of the fund can receive any remuneration for any duties or services performed as a trustee in relation to the fund.

Furthermore, there are different rules for single member funds. A single member fund must have a second individual to act as trustee with them. The second trustee does not need to be a member of the fund. If a single member fund chooses to have a corporate trustee, then they can be the sole director as there is no requirement for there to be a second director. However, they can choose to have an additional director if they wish.

It is important to follow a clear and consistent process to ensure all necessary changes are made and to avoid any compliance issues arising.

The following 4 steps outline the basic process that’s followed to change the trustee of an SMSF:

STEP 1: Review the trust deed, and constitution (if necessary) to determine how the change must take place

The first step in any major decision for a super fund should be to check the trust deed. The deed outlines the rules of the SMSF and will generally give guidance on the process of appointing or removing trustees. It should have specific clauses outlining the requirements for the fund. The trustees are bound by requirements of the deed and should follow what it says to do to validly appoint or remove trustees. In some cases, it may prescribe that a deed of appointment and removal/resignation/retirement is required, or a meeting of trustees may be sufficient to fulfil their obligations.

Additionally, if there is a corporate trustee in place for the SMSF, then any changes to the directors will require the trustees to check the constitution of the company for instructions about appointing and removing directors. The constitution will contain the specific clauses outlining the requirements for the company. For example, if may prescribe that the directors need to pass a resolution to change the directors.

STEP 2: Arrange legal documentation to enable the change in trustee

Once the deed, and constitution if necessary, has been reviewed you will have an understanding of what changes need to take place.

If changing an individual trustee structure to add or remove an individual it may be a matter of preparing a deed of appointment and removal/resignation, or simply a resolution. A trust deed update may be required depending on the age of the deed and the clauses in the current deed.

If changing from an individual trustee to a corporate trustee, then there may be a need to prepare a deed of appointment and retirement and may also be the need to incorporate a company to act as trustee if one does not exist already (preferably a new company is setup).

You will need to choose a proposed company name and make sure it is available to use. You will need to know the director’s details, who will be the shareholders and who will be the ASIC agent for the company.

In addition to the legal documentation, you will need to prepare Trustee Consent to Act forms for the new trustees and ATO Trustee Declaration forms. The ATO Trustee Declaration is required to be signed by every new trustee or director of a corporate trustee within 21 days of becoming a trustee or director of a corporate trustee.

 STEP 3: Notify government bodies of the change including the ATO and ASIC

When the legal documentation has been put in place the relevant government bodies need to be notified of the change of trustee.  You need to update the ATO’s trustee/member records within 28 days of the change taking place.

Where a corporate trustee is in place, you will need to notify ASIC of the change in directors.

If either the ATO or ASIC are not informed within the relevant timeframes, then penalties can apply to the SMSF.

STEP 4: Update the SMSFs investments to reflect the updated trustee name(s)

SIS Regulation 4.09A requires that money and assets be kept separate from personal assets. Keeping assets separate helps to safeguard the fund assets. An SMSF is a separate legal entity which must have its own assets clearly held in its own legal fund name. The assets are held by the trustees for the SMSF. Once the SMSF trustee is changed and all documentation is in place it important that the trustees get the investments all updated so they are held in the correct legal name.

The part of the process can be drawn out but it is important to check with the various investment body or type to determine what information they need to update their records.

Overall, the process to change trustees for an SMSF can be a long process but it can also be a necessary one.  It’s important to understand what is required and attend to it as soon as possible to avoid ongoing audit questions being raised about your fund.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.