By Graeme Colley
There may be times when you need to consider a change of SMSF trustee. Maybe they’ve lost mental capacity, or lost confidence/interest in running the fund, or they may be going overseas, or because they’ve passed away.
Whatever the reason, their replacement will be governed by the fund’s trust deed and the need to comply with the Superannuation Industry (Supervision) Act (SIS Act).
Under the SIS Act, all members must be trustees – either individual trustees or directors of a company trustee.
Where it is not possible for a person to be a trustee, the SIS Act allows an alternative trustee to take their place. This can occur if the person has granted an enduring power of attorney to a successor, is under 18 or has passed away.
A person who loses mental capacity is usually unable to be an SMSF trustee. It is possible for them to be replaced by their legal personal representative or someone who has been granted an enduring power of attorney. Appointment of a replacement is usually covered by the provisions of the fund’s trust deed.
Bart’s memory has been failing and a recent medical examination has shown he is suffering from dementia. Luckily, Bart has granted an enduring power of attorney to his daughter Yvonne who will replace him as trustee. The fund’s trust deed provides that if a trustee loses their mental capacity their appointment is terminated. This will allow Yvonne to replace Bart and be appointed as trustee because she holds an enduring power of attorney granted by Bart.
If the replacement trustee ceases to be the person’s legal personal representative, they would be required to cease as a trustee.
Sometimes, due to age or other reasons, a member may not wish to be a trustee although they understand the advantages of having an SMSF. Rather than wind up the fund, they can have someone act as trustee in their place. This can be done by way of a legal personal representative or someone who’s been granted an enduring power of attorney.
If an SMSF wishes to retain tax concessions, it’s necessary to make sure the tests of being an Australian super fund are met. One test requires that important decisions about the fund are to be made ‘in Australia’, which means trustees must be in Australia to make the decisions.
The temporary absence of a trustee for up to two years is permissible.
Longer than this and the trustee would need to be replaced. Once the absent trustee returns to Australia they can be reappointed, after the replacement trustee has resigned.
Trustees permanently moving overseas would need to be replaced.
Terry and Linda have an SMSF, have accepted a four-year work contract in the UK and once finished will return to Australia. In their absence their adult son Roger has enduring power of attorney to manage their Australian financial affairs. Terry and Linda would need to resign as trustees before Roger is appointed to act in their place.
On the death of a trustee/member it is usual 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.
Michelle passed away about three months ago. It’s now time to consider her superannuation and the payment of her SMSF death benefit. Michelle’s brother, Todd, is her legal personal representative and there is a provision in the fund’s trust deed that a death benefit cannot be paid until the deceased member’s legal personal representative has been appointed as trustee. This will require Todd to become trustee of the fund (or director of the trustee company) before Michelle’s death benefit can be distributed.
A member of an SMSF who becomes bankrupt is required to leave the fund as soon as possible. This requires them to resign in their capacity as trustee (or director) and member of the SMSF, and rollover their benefit to another fund such as a retail or industry fund. Their vacancy cannot be filled.
Other reasons for departure can include relationship breakdown or a person’s decision to shift to a professionally managed fund.
Where a departure results in a sole remaining member/trustee, it may be necessary to adjust the trustee structure.
Sunny and Rita have decided to call their marriage to an end. A Family Court settlement requires their superannuation to be split equally. The orders require that Sunny resigns as trustee once his benefit has been transferred out. It will be up to Rita to decide on the trustee structure – whether to appoint a new individual trustee or be the sole director of a trustee company.
If a fund becomes non-compliant due to trustee issues, it has up to six months to right itself. After this time its compliance status will need to be reviewed.
Where an SMSF has serious operational or compliance issues, the trustee may be removed by a regulator such as the ATO. This could occur if money has gone missing from the fund, or the fund’s compliance with the legislation has been so significant that the fund should be discontinued and wound up. The regulator may decide that the SMSF trustee be replaced by a professional trustee company.
Just because someone can no longer (or doesn’t want to) function as a trustee needn’t signal the end of an SMSF. There are alternatives which allow a trustee to be replaced. Meeting the rules of trusteeship are important – and failure to do so can have serious consequences.