If a Self-Managed-Superannuation Fund (SMSF) member loses capacity during his/her lifetime, this can be fatal to the operation of the SMSF, because he/she is no longer capable of acting as trustee or director of a corporate trustee.
There are 2 potential problems that result:
- If the person is not automatically removed as a trustee or a director of the corporate trustee, it may not be possible for decisions to be made. This is particularly a problem for 2- member funds, as decisions either require unanimous or majority decisions: in a 2- member fund this will require both to consent to decisions; and
- Where the trust deed or constitution provides that the person is automatically removed from their position in the event of incapacity, the SMSF may no longer continue to satisfy the basic requirements to be a complying superannuation fund, because the SIS Act requires every member to be either a trustee of the fund or a director of a corporate trustee.
However, subject to the provisions of the superannuation trust deed, there is an exception to this rule and that is that the member’s Legal Personal Representative (LPR) can be appointed a trustee or a director in place of the member, within six months of the member ceasing to be a trustee or a director. A person will be an LPR if they are trustee of the member’s estate where the member is under a legal disability, or the person is the member’s attorney appointed under an Enduring Power of Attorney ( it is a common misconception that the enduring power of attorney document must authorise the attorney to act as trustee of the SMSF or give the attorney power of the member’s financial affairs. This is not correct as Section 17 A (3) of the SIS Act merely provides that the SMSF will remain complying where a person is appointed as a member’s attorney acts as trustee or director in place of the member. Therefore, this section will be satisfied where a person who is only appointed in relation to personal and health matters acts as a trustee or director in place of a member).
If the member does not have an LPR who can be appointed as a trustee or a director of the corporate trustee, the SMSF is at risk of being made non-complying unless, 2 generally non-desirable options are utilised:
- The member’s benefits are rolled out (which will usually require assets to be sold) to a retail or industry superannuation fund; or
- An APRA- approved trustee is appointed.
It is critical and non-negotiable that each person who is a member of a SMSF has an enduring power of attorney in place to avoid these issues.
Wilson Haynes provides a SMSF EPoA service in which we:
- Review the SMSF documents (Trustee Company Constitution; Superannuation Fund Trust Deed);
- If necessary, make recommendations for any changes to SMSF documents to accommodate EPoAs;
- If necessary, draft change documents for gaining of appropriate resolutions by SMSF members and their advisers; and
- Prepare the relevant EPoAs and have them signed and witnessed
Contact Jim Wilson- Principal 07 – 55363055