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PRODUCT INFORMATION

CHANGING YOUR SMSF TRUSTEE WITH TOPDOCS

Topdocs provides you with everything required by the super fund's trust deed and the Australian Tax Office (ATO) to change the trustee of your SMSF, including full legal sign off on your prepared documents.

You receive the relevant minutes, deed of appointment and retirement of trustee, along with the required documentation to notify the ATO of the trustee change. We also provide a procedures sheet for your client, outlining their signing and reporting responsibilities. Plus you can add and remove members (up to 3) from the fund at no extra charge.

download Review the SMSF Change of Trustee order checklist download See the list of documents you will receive

LEGAL SIGN OFF ON YOUR DOCUMENTATION

There is more to a super fund trustee change than the preparation of a few trustee minutes. There may be additional parties required to consent to the trustee change or particular procedures that have to be met in order for the trustee change to be valid. Essentially, if your super fund trustee change is not done correctly, the appointment may be invalid, and consequently, all actions by the new trustee will be under scrutiny.

All SMSF trustee change documentation prepared by Topdocs is reviewed and signed off by a specialist lawyer to ensure your documentation is prepared correctly, protecting your interests as well as your clients.

WHY ORDER A TOPDOCS SMSF CHANGE OF TRUSTEE PACKAGE?

  • Your documents are individually reviewed and signed off by Topdocs Legal, ensuring all parties and procedures are included to validly change your trustee
  • Our SMSF change of trustee package can be used for any trust deed, meaning you don't have to update the deed at the same time
  • Easy, online ordering using the Topdocs Document Portal
  • All required ATO documentation is also completed as part of the package

MORE INFORMATION

You can learn more about the Topdocs SMSF Change of Trustee in the RELATED INFORMATION tab.

Should you have any queries or require more information, please call the team at Topdocs on 1300 659 242.

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adviser pricing ^ Adviser pricing is available to accountants, financial planners, SMSF specialists and legal practitioners. This pricing is automatically applied when you join Topdocs and sign into the Document Portal to order your documents.

 

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  • your document is professionally printed and bound, reviewed by our legal team where required, then delivered to you by express post

 

Should you have any queries or require more information, please call the team at Topdocs on 1300 659 242.

RELATED INFORMATION

MORE INFORMATION

Outlined below is additional information relating to the document you have chosen.

SMSF Change of SMSF trustee documentation ... [more]

The very nature of a family SMSF means that members and trustees may come and go from the fund. Parents may introduce adult children as members until such a time as the child has enough superannuation or their own family to commence their own SMSF. Members of an SMSF will pass away. There may be member disputes leading to splitting of the fund, a change of residency status, divorce or medical issues that may require changes to trustees and members of the fund. An executor may also need to be appointed as a trustee for a short period of time from the death of the fund member until the death benefits exit the fund.

Changing the trustee in an SMSF however, is not necessarily a simple process. To change an SMSF trustee there are four parts to the story that need to be considered:

  1. Type of trustee
  2. Making changes in accordance with the terms of the trust deed and corporate trustee constitution
  3. Reporting changes to the ATO and ASIC
  4. Administration

1. Type of trustee

Essentially there are two SMSF trustee options – the members themselves as individual trustees or a special purpose SMSF corporate trustee. The documentation to change the trustee for each will differ. In the case of individual trustees, new member additions or removals result in both a change of membership of the fund, as well as a change in trustee of the fund. A change in membership for a fund with individual trustees requires:

  1. Change of membership documentation;
  2. Change of trustee documentation;

and this documentation needs to be prepared to the specific provisions of the fund's trust deed and the SIS Act.

In the case of a corporate trustee, new member additions or removals result in a change of membership of the fund, but not a change in trustee of the fund, as the corporate trustee itself is not hanging, only the directorship of the company.

There is however, documentation that is required to appoint/remove the member as a director of the corporate trustee, which is likely to be governed by the constitution of the company, rather than the trust deed for the fund. The power to appoint directors of a corporate trustee, therefore, will likely rest with the shareholders of the corporate trustee and the power to remove them will likely rest with the directors themselves or the shareholders of the corporate trustee. A change in membership for a fund with a corporate trustee requires:

  1. Change of membership documentation, governed by the fund's trust deed and the SIS Act;
  2. Appointment/Removal of director documentation, governed by the Company's constitution and the Corporations Act.

Where individual trustees wish to change to a corporate trustee structure or vice versa, change of membership and trustee documentation is required, all of which will be governed by the trust deed for the fund and the SIS Act. There may also be directors of a corporate trustee being appointed or removed during this process, in which case relevant documentation, generally governed by the company constitution as well as the Corporations Act, will need to be prepared.

In addition, there are other considerations when a trustee leaves a super fund as a consequence of death. Some important things to consider are:

  1. Does a Legal Personal Representative (LPR) have to be appointed to the fund, to act on behalf of the deceased for any period of time?
  2. What the are implications in the company structure – if an LPR is appointed as a member of the fund for a period, then that LPR must also be appointed as a director of the trustee company for that period. Similarly, the LPR must be appointed as an individual trustee for the fund is the trustee structure is individuals.
  3. When does a member cease to be a member according to the trust deed? Is it when death benefits have been paid out of the fund, or at the death of the member?
  4. Is the fund's trustee structure, after the death of the member, still a compliant trustee structure for the purposes of the SIS act, or does an additional trustee have to be appointed in the deceased's place?
  5. The timing of all of the above after the trustee has died.

Given the above, there should be some careful consideration given to the type of trustee chosen and the deed selected in an SMSF. For example:

  • Do you know who would take over your role as trustee of your SMSF if you were unable to perform it for medical reasons?
  • Do you know who would take over your role of trustee of your SMSF if you passed away?
  • Does your SMSF have a trustee that easily caters for membership changes at minimal and with few administration headaches?
  • What will happen if your residency status changed?

2. Making changes in accordance with the terms of the trust deed

The rules for documenting changes of trustee are contained both in a fund's specific governing rules (trust deed) as well as in the SIS Act.

There is a large array of SMSF deeds in the market and each deed has different methods and rules for changing trustees. Some may require the consent of other parties such as a founder, principal or employer sponsor. Some may only require the consent of members or the trustees. One popular online deed required the deed to be varied in full if there is a change from corporate to individual trustees or vice versa.

In addition, the SIS Act provides that a person is not eligible to be appointed as a trustee (or director of a trustee) of a super fund unless the person has consented in writing to the appointment. If any trustee (or director of a trustee) has not consented in writing to their appointment, they are not eligible to hold that office. This is case regardless of whether they were appointed before or after 1 July 2007.

So what does it matter if these rules aren't complied with? Recent court cases have shown that incorrectly prepared change of trustee documentation can lead to the change of trustee being invalid and trustee actions questioned. This may result in financial exposure to the trustees (or the adviser that prepared the documentation). Review of the trust deed and subsequent preparation of the change of trustee documentation should be prepared or reviewed by a legal practitioner. The PI insurers for accountants or financial planners are unlikely to cover them for legal document preparation if something goes wrong.

3. Reporting changes to the ATO and ASIC

From 1 July 2007, the trustee of a SMSF must notify the ATO within 28 days of changes in the:

  • fund membership
  • fund trustees
  • fund address
  • name of the fund
  • contact details
  • directors for the corporate trustee (where applicable).

From 1 July 2007, expanded administrative penalties may be applied where funds fail to advise the ATO of a change of trustee, or other changes to the fund.

Further, the Australian Securities and Investments Commission (ASIC) must be notified of any director/shareholder changes occurring within a SMSF trustee company within 28 days of the change. Failure to do so will result in monetary penalties for the company.

download Download the Topdocs SMSF Change of Trustee documentation information sheet

 

Topdocs' SMSF trust deed review process ... [more]

Topdocs ensures your SMSF Deed Update documentation is prepared correctly, and protects your firm and your clients, through our provision of legal review.

What is legal review?

Our legal review is the process of an in-house lawyer examining the current trust deed of your Superannuation fund, and confirming the documentation provided to update the trust deed has been prepared correctly.

Issues associated with preparing trust deed Updates

Updating an existing SMSF to a new deed is more that simply noting the variation clause. There may be additional parties required to consent to the update, conflicting clauses in the current deed, clauses that must be retained in an upgrade and many other issues that can complicate the deed update process. These additional requirements have an effect on the way the documents to update the deed are drafted. Whilst some deeds may be easy to update, and can be done so via a standardised template, many deeds require drafting outside the ‘norm’ that requires legal expertise in order to be prepared correctly.

The preparation of SMSF deed updates therefore presents two main issues:

  1. Legal expertise is required in the examination of the trust deed to determine how to update the deed; and
  2. Specific drafting is often required to properly prepare the update, which needs to be done by a lawyer

Issue 1 – Legal expertise is required in the examination of the trust deed to determine how to update the deed

The documentation that is required to update a trust deed is dictated by the terms of the current deed of the fund. Therefore an interpretation of the current deed is required to determine the parties and procedures required to update the trust deed. This interpretation should either be done by a lawyer, or at the least confirmed by a lawyer.

This prerequisite creates issue for advisers who order their trust deed updates online and download their deeds without legal oversight of their documentation. Part of the process of ordering a deed update online is providing the parties who you believe, according to your interpretation of the trust deed, are required to update the trust deed. Without a lawyer at the other end looking at the trust deed to confirm these parties, your answers are therefore dictating how the documents are being drafted.

The issue is that if the documents end up being drafted incorrectly because of your interpretation of the trust deed, should anything go wrong as a consequence, you may be the one who the trustees of the fund take action against. And your Professional Indemnity insurance is not likely to cover you should this occur, because this situation has occurred as a consequence of you interpreting a legal document, which only a lawyer’s PI insurance covers.

Topdocs allows you to order your deed updates online, but to only receive them as full service. This ensures ordering your documents is quick and easy, and also enables us to interpret your trust deed to confirm the information you have provided to us is correct.

Issue 2 - Specific drafting is often required to properly prepare the update, which needs to be done by a lawyer

Many deeds require specific drafting to be updated, due to reasons such as additional parties being required to consent to the update, conflicting clauses in the current deed, clauses that must be retained in an upgrade and many other issues. For this reason, it is important to update your deed with a firm that has the ability to not only interpret your deeds for you, but to provide the specific drafting required to properly update your trust deeds.

Further, it is important to note that no matter how sophisticated an online deed update system is, it cannot cater for all types of trust deeds and circumstances on the market, and therefore, you are putting yourself and your clients are risk if you order and receive your deed updates online.

Topdocs not only interprets your trust deeds for you, but we ensure all required drafting to properly prepare the update is done to ensure each update we prepare for you is correct. We then have our lawyers sign off on our work.

What can happen if a deed update isn't legally reviewed?

If a deed update isn’t carefully prepared, and consequently, prepared incorrectly, a range of issues can arise. These issues can result in major financial repercussions for the fund, including;

  1. loss of concessional tax status if the fund is later deemed to be non-compliant by the regulator, as a consequence of an action taken by the trustee under the invalid deed,
  2. resettlement of the trust with CGT implications, if a new trust is deemed to have been created as a consequence of the error,
  3. challenges to assets held in the fund, as a consequence of an action taken by the trustee under the invalid deed. For example, a disgruntled beneficiary challenging a Binding Death Benefit Nomination that was created under the invalid trust deed.

Should any of the above occur, and result in adverse financial consequences for your client, and you have not received legal review and sign off on your documentation, then it may be you who the trustees of the fund will take action against.

Topdocs' legal review service

Topdocs manages any potential issues associated with updating a trust deed by:

  1. interpreting each deed we receive to properly determine the procedures and parties required to update the deed
  2. preparing any specific drafting required to ensure the deed update is done correctly
  3. providing you with a letter of legal sign off on all deed updates we prepare for you, stating the deed update has been correctly prepared.

Ordering a deed update is done quickly and easily online. However, to protect you and your client, we only provide deed updates via full service delivery. That is, you deed update is prepared in-house, reviewed by our legal team and then send to you by express post. It is this process that enables us to ensure your trust deed is compliant and prepared correctly.

download Download the Topdocs SMSF Deed update legal review information sheet

 

Corporate trustee vs Individual trustees in SMSFs ... [more]

Whilst establishing your SMSFs with individuals acting as trustees may save your client a few dollars in the short term, the benefits of registering a corporate trustee for your new SMSFs far outweigh the short term savings. Below are the key reasons to establish all of your new SMSFs with a corporate trustee.

Reason 1 – Succession upon death

A company is an indefinitely continuing entity. Consequently, having a company as trustee for the fund ensures control of the super fund is always certain – an especially important factor when a member of the fund dies.

Example:

Jack and Jill are members of a SMSF, and both are individual trustees. Jack dies, leaving Jill as the sole remaining member and individual trustee for the fund. In order for the fund to remain compliant, Jill must appoint a second individual trustee in Jack’s stead. Whilst Jill may assume the role of second individual trustee for the fund temporarily (in her capacity as Legal Personal Representative of Jack – depending on the terms of the trust deed) when Jack’s death benefits have been paid out, she will need to appoint another person to act as an individual trustee. This means Jill will relinquish full control of the fund.

The above scenario may have a number of outcomes. Jill may have children that she wishes to appoint as trustees of the fund in which case a suite of documentation to appoint the children as members and trustees of the fund would be required to be completed. She would also have to change the name in which all of the fund’s assets are held.

Jill may also not have any children, or close relatives that she trusts to share control of her fund with. In this case, Jill may decide to establish a corporate trustee company, and act as the sole director, to ensure she retains full control of the super fund. In this scenario, she would need to set the company up, and prepare relevant documentation to change the trustee of the fund. She would also have to change the name in which all of the fund’s assets are held.

Had Jack and Jill established the fund with a corporate trustee in the first instance, none of the above would be an issue. After his death benefits were paid out, Jack would simply cease to be a member of the fund, and Jill would continue as the sole member of the fund, without having to appoint another trustee, prepare any change of trustee documentation or change the name in which the fund assets are held. She would also automatically maintain full control of the fund.

Reason 2 – Trustee litigation exposure

One of the most important reasons to have a corporate trustee is litigation exposure. Individuals acting as trustee of the fund are jointly and severely liable for any actions taken against the fund, as they hold the assets of the fund in their individual names. Should litigation against the fund exceed the assets held in the name of the trustees as trustees for the fund, the personal assets of the individuals personally may become at risk.

Companies on the other hand have limited liability. This ensures litigation against the fund is limited to the assets held in the name of the company and do not stretch to the directors of the company. If the company is a sole purpose SMSF trustee Company, this will ensure any claim against the fund is limited to the assets held by the company as trustee for the fund, and no director’s assets will be at risk.

Reason 3 – Administrative Efficiency

One of the key benefits of a SMSF is its fluidity; allow multiple generations of a family to come and go from the fund. Instances of changes in membership to a SMSF may include:

(i) Parents admitting their children into the fund;

(ii) The marriage of an existing member of the fund to a non-member of the fund, or the divorce of members within the fund;

(iii) Upon the death or incapacity of a member of a SMSF, where an external Legal Personal Representative is appointed to temporarily participate in the fund in the existing members stead.

Whenever a change in membership occurs, a change in trusteeship is also required to occur. The fact that trustees and members can come and go easily to and from a SMSF raises a time consuming and costly administration problem for SMSFs with individual trustees. This is because the law requires the SMSFs assets to be held in the names of all of the trustees of the fund.

Consequently, whenever a new trustee is appointed to the fund, or an existing trustee leaves the fund, the fund is required to notify all relevant registries and offices of a change in the name of the assets held by the fund. Furthermore, legal advice as to the procedures to remove / appoint the trustee and member, as determined by the fund’s trust deed, must also be taken. Overall, the admission and removal of individual trustees can be a costly and time consuming exercise.

In contrast, when a new member joins a SMSF with a corporate trustee, the corporate trustee itself does not change, only the underlying directorship of the company changes. Therefore, there is no requirement to change the name in which the assets of the fund are held. The assets are still held in the same name - that is the name of the company. Furthermore, there is reduced documentation required to appoint a new member to a corporate trustee fund than there is to admit a new member to a fund with individual trustees, as deeds of appointment and removal of trustee are not required.

Reason 4 - Lump Sum Payments

For a SMSF to receive its concessional taxation status it must elect to be regulated by the Australian Tax Office (ATO) and comply with the laws and regulations outlined in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and Superannuation Industry (Supervision) Regulations 1994 (SIS Regs). Section 19 of the SIS Act is very specific in its determination of what constitutes a regulated SMSF, in part stating that the “trustee must be a constitutional corporation or (the) fund must be a pension fund”. The consequence of this is that the fund must either have:

i. a Corporate Trustee; or

ii. Individual Trustees, in which case, the fund must be a pension fund. That is, the sole or primary purpose of the fund must be to pay old age pensions.

The effect of this legislation is that a fund with a corporate trustee may pay benefits as either a lump sum or a pension. However, funds with individual trustees can only pay benefits in the form of pensions, as their sole or primary purpose is the payment of old age pensions. Strictly speaking, in order for a fund with individual trustees to compliantly pay a lump sum benefit, the member receiving the benefit would first have to commence a pension, then commute the pension and pay the remaining benefit as the lump sum benefit.

Reason 5 – Sole Member Funds

If a fund with individual trustees has a sole member, the SIS Act requires that the fund must have a second individual trustee in order to be a compliant SMSF. If that sole member has no spouse or children, this will mean that the member will have to relinquish some control over the fund to another person.

Alternatively, the SIS Act provides that a sole member SMSF can have a company as trustee with either one or two directors, one of which must be the member. In this case a sole member can assume total control over the SMSF by appointing themselves as the sole director of the corporate trustee.

Other Considerations

Costs in establishing a Company as trustee

Some advisers are put off by the initial cost involved in establishing a company to act as trustee of the fund. However, the actual costs associated with a Sole Purpose SMSF trustee Company are low compared to the extra costs that can be associated with individual trustee funds, especially in documenting trustee changes.

In addition, if you also consider the succession and litigation advantages of a company over individuals, the overall cost effectiveness of a company will generally outweigh the initial incorporation costs. Further to this, should you establish a Sole Purpose SMSF trustee Company, the only ongoing fee you will be liable for is the $45 yearly ASIC levy. The company will not have to register with the tax office, or lodge a tax return (all returns are done through the super fund).

download Download the Topdocs Corporate Trustee vs Individual Trustee information sheet

 

Should you have any queries or require more information, please call the team at Topdocs on 1300 659 242.