An SMSF change of trustee document could be a “time bomb” if not properly drafted by a lawyer, due to the numerous hurdles to overcome in order to ensure a valid removal and alteration.
“It’s a really interesting area of law and one where we can take you into the minds of lawyers so you know what we go through, so you can think about the sort of instructions you want to give us and helps you with your decision-making,” DBA Lawyers senior associate David Oon said.
Oon posed the question about the number of individual hurdles that must be overcome before the change of trustee is valid.
“How many hurdles will you need to think about and jump over, depends on what the SMSF trust deed in front of you says,” he said.
“Often these hurdles exist: you can’t just make a document that resigns person A and person B is appointed, and sign it – that will not necessarily work because the SMSF trust deed is usually going to say who has power to appoint and remove a trustee.
“It can be a serious problem if you don’t pay attention to that, so ensure the right party is changing the trustee of the fund or exercising the correct power.”
He said it could be the existing trustee, the members, founder or principal employer among others.
“That’s just a huge trap in itself – and you don’t want to sign a document and fully exclude the party who the deed states [must action the change of trustee],” he warned.
“Also sometimes the deed gives the power to party X with the consent of party Y, so that’s another big trap.
“And in order to avoid the change of trustee being challenged, you will need to have the change of trustee document executed properly.”
Another crucial consideration was where the trust deed states the change of trustee must happen by deed, he noted.
“So if you’ve done it by resolution, that might well fail,” he said.
“Also the trustee appointment may require that you give 28 days’ notice in order to change the trustee. That’s another hurdle.”
He cautioned another possible obstacle was whether the power is phrased as a resignation or a removal power as they operated differently.
“And sometimes the deed will say the change of trustee to a company can only be done if a deed update is immediately also done,” he added.
“So you can only change the trustee to a company if you get a deed update straight away, which gives power or has the relevant provisions to have a company act as a trustee – this is a massive trap as well and we see it a lot.”''