Summary: The work involved in switching from individual trustees to a company trustee is the same work required if an individual trustee dies, without the other stresses associated with someone dying. An SMSF’s trust deed will dictate the procedures required to change a trustee.
Key take-out: When appointing a new trustee, changing the name of all investments and bank accounts can reduce future complications and is best practice, but is not required by legislation.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.
Considering a company trustee
We currently are the individual trustees of our SMSF and have been looking at whether we need to appoint a company to take over from us. We understand that there are some benefits of doing this but have also heard that there is a great deal of work involved in the changing over to a company acting as trustee. Do you think it is worthwhile going to the effort of changing to a company and what is involved in the process?
Answer: The first thing to realise is that the work required to change from individual trustees to a company trustee is the same work required if one of the individual trustees dies. This means your choice is to do the work and prepare the documentation now, or wait until when one of you dies and do it then (see Tax with Max: Avoiding the worst aspect of DIY funds, February 25).
If you waited until one of you died you would be forced to either find another individual to act as trustee, or to appoint a company to take over as trustee. It may seem simpler to appoint a new individual to take over from a deceased trustee. This can however create an ongoing administrative nightmare depending on where the second trustee lives as in most cases SMSF and investment documentation must be signed by both trustees.
The procedures and documentation required to change a trustee will be dictated by your fund’s trust deed. It should be reviewed to see what is required. It could specify that certain documentation must be prepared, such as a deed of variation of trustee, or could simply require approval in writing by all members of the fund.
If the change in trustee is left until when one of you die the deceased’s Legal Personal Representative, in most cases this would be their executor, would need to sign documentation on behalf of the deceased. There can be other steps that must be taken before an LPR can sign on behalf of the deceased, but this will again depend on what your trust deed specifies.
Many experts and the ATO state that the name SMSF investments are held in must be changed once a new trustee has been appointed. This requirement is not supported by any legislation and is only a best practice recommendation.
If a trustee dies it is more important to change the name that the SMSF’s investments are held in. If these investments were set up requiring two signatures on documentation purchasing the investment, a copy of the death certificate normally must be forwarded to explain why only one signature is present on forms making changes.
This is why when given the choice it is always best to take the option of either trustee signing when it comes to an investment. This is because when one of the individual trustees dies the remaining trustee can sign all documentation to either sell or make other required changes.
If you choose to appoint a company to take over as trustee now this can be done at a time when all required signatures can be obtained, and also at a time when the other stresses associated with someone dying are not present.
Someone who wants to reduce future complications and adopt the best practice model required by the ATO you would need to change the name that all investments and bank accounts are held in. The documentation required to change the name of the trustee varies depending on the type of investment, and can vary between different investment managers.
In many cases a letter signed by both trustees advising of the change of the trustee, an anti-money laundering proof of identity document, a transfer form, a printout from ASIC proving the formation of the company and its directors, and the documentation prepared to change the trustee can be required. In addition stamp duty of approximately $50 could be payable if the investments are based in New South Wales as all ownership changes must be advised to the state revenue office.
In many cases the name that bank accounts are held in can be changed rather than a new bank account being set up. The documentation and procedures to follow will vary depending on the financial institution that your SMSF uses.
Where shares are owned by an SMSF the name that the trustees’ broker or share service is held under should be changed. Changing the trustee name shown on the various shareholdings will often require transfer forms to be completed plus transfer fees could also be payable.
The amount of work and documentation required to appoint a company now can be reduced if the name that the SMSF’s investments are held are changed at some later date, the investments are sold, or they mature.
For investments that have a defined term of investment, such as term deposits and unlisted property trusts, the documentation and costs of changing the trustee’s name can be eliminated. If the name of the trustee on all investments is not changed documentation should be prepared that shows that the original individual trustees will continue to hold those investments in their name as custodians on behalf of the fund and the new trustee.
If the name that the investments is held in is not changed, and one of the original trustees dies before the investment has matured or been sold, no problems should be caused as long as the investment application was completed allowing either trustee to sign. If both trustees’ signatures are required the investment can still be sold but a death certificate will need to be provided supporting the reason why only one signature is on the documentation.
In the end whether you change the trustee of your SMSF now, or wait until when one of you dies, is very much a personal choice. This is because there is really no difference in the documentation required in both instances.
Avoiding bank fees
Question: Last year when my co trustee, my sister, passed away I formed a company with me as sole shareholder to take over as trustee on the advice of my accountant. So far no problems except when I went to open a new bank account I have to pay the bank an off market transfer fee to change the name on the fund’s shareholdings. Is there an alternative?
Answer: You should not need to set up a new bank account, you should only need to change the name of the trustee. To change the name that the bank account is held in should not require any off market transfers. In most cases a letter or some other document must be signed by the original signatories, in your situation the LPR of your sister would sign on her behalf, and a document from ASIC that shows the director/directors of the trustee company are will need to be provided.
If you want to change the name on the SMSF’s share holdings this could result in transfer fees depending on whether your share service or broker actions the name change. If you can lodge the appropriate documentation with each company’s share registry your costs could be reduced.
Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.
Do you have a question for Max? Send an email to firstname.lastname@example.org