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Change of SMSF trustee: practical tips for LRBAs

Where a fund with a limited recourse borrowing arrangement (LRBA) in place elects to change its trustee, the outgoing and incoming trustees need to be mindful of their obligations under superannuation law and the LRBA documents including the Custody Deed, the Loan Agreement or Equitable Charge. This article provides some tips and guidance to trustees to help them comply with their duties.

Kate Hocking, Maddocks Lawyers

Why would I change the trustee of my fund?

There are a number of reasons why a fund may change its trustee including:

  • minimising risk of incurring higher administrative penalties under the new SMSF trustee penalty regime which takes effect on 1 July 2014 (see the ClearLaw article "Upcoming SMSF administrative changes: early discussion with the ATO");
  • request by a financier;
  • retirement of an individual trustee;
  • death of an individual trustee;
  • a member leaving the fund; or
  • forthcoming deregistration of the corporate trustee.

Changing the trustee of a fund? Then review your LRBA documents

Before a fund changes its trustee, you should review the terms of the LRBA's custody, loan and security documents, to see if they contemplate a change of the fund's trustee. This applies to both related party and bank LRBAs. In each case, the outgoing trustee(s) must provide advance notice to the lender and custodian.

If the LRBA was not established using Cleardocs, you should ensure that the change of trustee does not trigger any default provisions under the relevant loan agreement and security documents. In the case of a bank lending LRBA, these loan and security documents will have been provided by the relevant bank and will most likely determine a change of trustee — without the bank's prior consent — to be a default.

The Cleardocs Custody Deed, Loan Agreement and Equitable Charge documents contain interpretation provisions to the effect that a reference to any legal person in the document includes the legal personal representatives, successors and assigns of that person. As a result:

  • no specific amendments are required to these documents in light of a change of trustee;
  • whilst the documents do not prevent a change of trustee, the change of trustee documents will not of themselves discharge the outgoing trustee from its obligations under the Loan Agreement. As a result, the outgoing trustee should seek to perfect the change of trustee by having the new trustee expressly assume all legal obligations under the Loan Agreement.

Practical tips to document the changes to the LRBA

To perfect the necessary changes to the LRBA arrangements, which would otherwise only take effect in equity, it is advisable and good practice to arrange for the custodian, lender, outgoing trustee and incoming trustee to sign a short deed prepared by a lawyer. That deed should confirm:

  • that the outgoing trustee transfers its rights to the incoming trustee, and is discharged of its obligations, under the LRBA documents;
  • that the incoming trustee agrees to assume all of the outgoing trustee's obligations under those documents; and
  • that if the acquirable asset is real property/land, then where required, the trustee will notify the relevant state or territory land titles office to notify them of the change to the debtor's details (being the trustee(s)) for the registered mortgage. The registered proprietor (or in the case of shares, the shareholder) of the acquirable asset will be the custodian, not the trustee, so no change will be required to the title of the asset.

In Victoria, the new Land Victoria Mortgage form no longer requires the debtor's details to be included. As a result, if the new Land Victoria form was used to register the mortgage, Land Victoria will not need to be notified of the change of trustee. If the mortgage was registered in any other state or territory, you should seek your own independent advice on this issue.

The deed should be prepared in addition to the change of trustee document which is executed to record the change of trustee in accordance with the requirements of the fund's deed.

Change of trustee structures

A change of trustee involves one of the following structural changes to the fund:

  • individual trustees to a corporate trustee;
  • corporate trustee to individual trustees;
  • individual trustees to different individual trustees; or
  • corporate trustee to a different corporate trustee.

Regarding the appointment of individual trustees, superannuation law permits the following trustee appointments in place of a member:

  • a legal personal representative of a deceased member;
  • a legal personal representative of a member with disabilities who holds an enduring power of attorney; or
  • a parent, guardian or legal personal representative of a minor member.

Where there is a change of trustee, it is important that the outgoing and incoming trustees do everything required to vest the fund and its assets in the name of the new trustee(s). This includes delivering all books and records to the new trustee(s).

How do I change the trustee of my fund?

It is important to always follow the change of trustee process set out in the governing rules of the fund. The governing rules are contained in the fund's trust deed.

If the fund has a Cleardocs SMSF deed then:

  • appointing individual trustees: a corporate trustee may appoint the members of the fund as trustees in place of the trustee by executing a deed to that effect. Also, individual trustees must make appointments as necessary to ensure, generally speaking, that all members are trustees;
  • appointing a corporate trustee: individual trustees, or a corporate trustee, may appoint a corporation of which the members of the fund are the only directors, as a replacement trustee. If the trustees of the fund were previously individuals, the trustee must immediately after the appointment of the corporate trustee replace the fund's deed with another deed which provides the mechanisms to enable a corporation to act as trustee; and
  • formalities: formalities will include:
    • ensuring the appointment or removal of a trustee is in writing and immediately advised to any other trustee; and
    • ensuring the fund has the appropriate deed for the incoming trustee(s), depending on whether the fund has a corporate trustee or individual trustees.

Cleardocs offers a quick and easy way to change the trustee of your fund by ordering its SMSF Change of Trustee product. Please note that your fund must have a Cleardocs SMSF Deed to use the Cleardocs SMSF Change of Trustee product. If your fund does not have a Cleardocs SMSF deed, you can update the fund's deed first using the Cleardocs Update to SMSF product.

If your fund does not have a Cleardocs SMSF deed and you do not wish to update it using the Cleardocs Update to SMSF product, you should check that the fund's deed has mechanisms to enable a company to act as trustee. If it doesn't contain these mechanisms, you should consider updating the fund's deed either through Cleardocs or by speaking to the fund's lawyer.

Do I need to notify anyone about the change of trustee?

If there is a change to the fund's trustee or directors of the corporate trustee, then you must notify the ATO of this change within 28 days of that change by submitting a Change of details for superannuation entities (NAT 3036) form.

More Cleardocs information on related topics

You can read earlier articles on a wide range of SMSF topics.

Order SMSF related document packages


Lawyer in Profile

Julia Tonkin
Julia Tonkin
+61 3 9258 3318

Qualifications: BA, LLB, University of Melbourne

Julia is a Partner in Maddocks Corporate and Private Clients team. Julia has extensive expertise in:

  • estate planning, structuring for succession of ownership and control of private and family businesses.
  • charities and not-for-profit space.

Julia’s clients include high net worth individuals and families and privately held businesses.

Clients value Julia’s empathic, common sense yet technically sound approach to complex legal (and often interpersonal) issues.

She has been recognised as an Accredited Specialist by The Law Institute of Victoria with an accreditation in Wills & Estates Law. She has also been recognised in Doyles Guide for Wills, Estates & Succession Planning Law Recommended – Victoria in 2023.

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