The reality of ageing SMSF trustees: death of an SMSF trustee

On the death of an SMSF trustee, the last thing many family members think of is how to deal with that member's superannuation interest. However, time is of the essence when it comes to death and superannuation. So, if you are the trustee of an SMSF, what are your obligations when a trustee dies?
 

SMSF structuring

Upon the death of a trustee, it is normal practice for the their legal personal representative (the executor or administrator of the estate) (LPR) to stand in their shoes in their capacity as either an individual trustee or a director of the corporate trustee so that the fund still falls within the definition of an SMSF under superannuation law.

The LPR can continue in the role until the accumulated benefits of the deceased member begin to be paid as a death benefit.

After the death benefit starts to be paid, the LPR must resign as trustee and the fund's trustee structure must meet the ordinary requirements of section 17A of the SIS Act.

Generally speaking each adult member of an SMSF must be either a trustee in their individual capacity or a director of the corporate trustee company. Under superannuation law, in order to be a compliant single member SMSF:

  • in respect of an SMSF which is established under a corporate trustee structure, the surviving member will be the sole director of the company acting as the corporate trustee; or
  • in respect of an SMSF which is established under an individual trustees structure, to prevent "structural non-compliance" (that is where the structure of the fund's trustees does not satisfy that requirements of section 17A of the SIS Act) the surviving member must:
    • appoint one or more additional individual trustees; or
    • restructure the SMSF to a corporate trustee structure where the surviving member acts as the sole director of the corporate trustee.

Under superannuation law, the surviving trustee has a 6 month grace period from the date of retirement of an LPR to take the steps necessary to prevent "structural non-compliance" and restructure an SMSF following the death of a trustee.

If an LPR does not act as trustee on the death of a member, the fund's surviving trustee must restructure the SMSF to meet the ordinary requirements of section 17A of the SIS Act within 6 months from the trustee's death.

Requirement to amend SMSF Trust Deed

In some cases, the Trust Deed must be amended if a corporate trustee will be replaced by individual trustees, or vice versa.

If such a change is required, the trustee will need to be mindful that:

  • for an SMSF with a Cleardocs deed, the deed requires that the trustee execute another deed which, either:
    • provides the mechanisms to enable to members of the fund to act as trustees of the fund, where the SMSF has been structured with individual trustees; or
    • provides the mechanisms to enable a corporation to act as trustee of the fund, where the SMSF has been, or will be, structured with a corporate trustee.
  • they are required to notify ASIC of any changes to directors and shareholdings in the corporate trustee; and
  • they are required to submit to the ATO the details of a change of superannuation details (including a change of trustee, (or directors of a corporate trustee) or members of the SMSF).

Cleardocs Change SMSF Trustee (death of a Trustee) package

You can now use Cleardocs to create the relevant documentation to effect a change of trustee where a trustee of an SMSF has passed away, in circumstances where a new trustee must be appointed.

The Cleardocs package can be used for any SMSF, irrespective of whether it currently has a Cleardocs trust deed or some other form of trust deed, where the death of a member has resulted in a 'structural non-compliance' issue for the SMSF.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the superannuation team.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of matters.

Order Cleardocs SMSF packages