How do you change a two-member SMSF?

What happens if the fund is set up and ready to go but one party changes their mind and doesn’t want to go ahead with it? It’s all talking about in the case of death but what about just having second thoughts after the paperwork is all done and it’s set up ready to transfer super into it but haven’t yet?

If both directors/members of a Corporate Trustee SMSF with only 2 directors and 2 members agree - is it possible to change the structure from a 2x member/director Corporate Trustee SMSF to a single member/ single director fund if the member and director are the same person?

One of the two trustees of a individual member fund dies, the member has a valid will and the remaining member is both executor and beneficiary of all financial and real assets as nominated in the will. Does the remaining member retain the capital within a SMSF structure and can joint accounts within the SMSF be renamed?

I assume there are 2 trustees and 2 members.
You need to look at the terms of the Super Fund Trust Deed for the prescribed manner in which death benefits are to be treated.
Deceased member benefits do not automatically vest in the deceased estate.
Check if the member executed a Binding or non binding Death Benefit Nomination.
If not then any dependents of the deceased must be considered.

(Sole purpose of super fund ... to provide retirement and death benefits to members and their dependents )

Be very careful with this topic as there have been several recent legal cases considering the issues.
Ambulance chasing style law firms are targeting this sector so be aware this is a legal minefield, and obviously I don't know your personal circumstances to offer full advice on this.

A related issue growing in importance with our ageing demography is the need for all SMSFs, especially those with elderly members - often a couple - to preempt the problems posed by age-related infirmity. The obligations on SMSF trustees are onerous, and there are indications that the ATO is getting more enforcement-oriented (rightly in my view, as SMSF non-compliance is not a victimless crime: the taxpayer is often the victim).

Unfortunately, ATO guidance on trustee capacity to manage matters can be more robust than it has been. As health, family and partner care issues crowd out the mind, chances of slippage are real.

I have advocated - as with seniors driving - a periodical capacity testing as SMSF members reach a given age (say 70). The auditor would have to talk to each trustee and certify that their capacity remains unimpaired. Auditors are not geriatric medicos, but this is better than at present (nothing).

The ageing tsunami has the potential to wreak havoc on our social and financial fabric, and precautions are warranted. The warnings are potent.

Hi Monica,
Is it possible for an SMSF corporate trustee to have 3 directors but only 2 members with the 3rd director being a non-member?
Thanks,

Wayne, the answer is No I am afraid, the rules are that all trustees must be a member except in single member funds. For Self Managed Super funds other than single-member funds, an SMSF is one where:

• there are four or less members
• all members are trustees, or directors of the trustee company
• there are no trustees or directors who are not members
• there are no members who are employees of other members (unless they are relatives).

It may be prudent to have a trust deed and company constitution that allows for the automatic appointment of a Legal Personal Representative / Executor as a company director on death of a member. An alternative in funds where voting power is based on balances then it may be possible for the third director to have a small balance and the main 2 directors still control the fund with majority voting rights.

Dear Wayne,

Thank you for your email and sorry for the late reply. I have been on a seven week overseas holiday where internet access was difficult to obtain.

In relation to your query, you cannot appoint a company as a corporate trustee of an SMSF where only two of the directors are members of the SMSF. The superannuation law requires that where a company acts as a corporate trustee all directors of the company must also be members of the SMSF.

Kind regards, Monica Rule

Check the name that the assets are held in, such as on a statement. The assets are in the name of the trustee, either a company or an individual(s).

how can you find out if your SMSF is an individual or corporate one? I've forgotten how we did our as it was some years ago!

Surely, unless we both go down in the same airplane crash, it is a case of when one SMSF member dies, rather than if?
And on the subject of incapacity, even now I sometimes wonder about my husband's sanity!

What happens when the surviving director of a corporate trustee (who is also the sole member of the Fund) dies? Without a board member the corporate trustee cannot act to register a transfer by the executor of the surviving director/sole member. No one can manage the fund. Can the constitution of the trustee be changed to say the auditor can act?

Hi Ross,

Thanks for your question.

Firstly, you will need to check your SMSF Trust Deed and the company's constitution as to whether it allows for automatic director appointment provisions. If so, it may be best to appoint a legal personal representative, or the executor of your estate, to have the power to appoint a new director.

Section 201F of the Corporation Act 2001 does provide that, in the event of the death of a single director of a proprietary company, the executor or other personal representative appointed to administer the deceased's estate may appoint a new director of the company. The new director will then have all the powers, rights and duties of the deceased director and will keep the company running.

If however, there are no such provisions in the Trust Deed and the company's constitution, then an executor is ordinarily appointed by means of a valid will. However, where there is no will, a near relative or other person would have to apply to the local Supreme Court for letters of administration to manage the estate and this could take some time.

Another way I believe is for a Corporate Power of Attorney to be put in place. A Corporate Power of Attorney will need to be executed by the company.

It will allow the person nominated in the Corporate Power of Attorney to do all things that the sole director could do. The fact that the sole director has died is not relevant because the Corporate Power of Attorney was executed by the company which is a separate legal entity to the sole director who signed the actual document.

I have not dealt with too many SMSFs in this situation so I would be happy to receive comments from other readers who may have more experience on this matter.

Monica

Monica, Many thanks for a solution. It raises the question of whether the corporate trustee can execute a power of Attorney which is limited to only take effect after the death of the sole member/director/secretary?
Your help is greatly appreciated Ross

Ross, an Enduring Power of Attorney is not valid i.e. terminates after the death of the donor. The deceased person’s Legal Personal Representative is the one who may take control in the case of death subject to the constitution of the corporate trustee and trust deed but there can be complications. Accordingly, it is often recommended that either another director be appointed from the outset to act alongside the sole member, or the company trustee appoints someone as the company’s attorney, so that this person can act on behalf of the company if the member dies. In terms of managing the risk of mental or physical incapacity then you can use an Enduring Power of Attorney and prescribe the instances under which that power is activated such as “on loss of mental capacity as confirmed by 2 specialists”. This option is becoming more common as the values of SMSF balances increase, dementia and Alzheimer’s cases grow more prevalent and elder financial abuse cases are on the rise.