Losing capacity, either physically or mentally, is a topic many people don’t like to discuss or even think about. However, if you are a member of a self managed superannuation fund (SMSF) then you are generally either a trustee or a director of the corporate trustee, which makes it vitally important to consider this possibility and the ramifications.
If a member becomes legally incapacitated then they can no longer fulfil their duties as a trustee or director of the corporate trustee. Where the paperwork has not been put in place to enable someone to act in the capacity of trustee (or director of the corporate trustee) for a member that is incapacitated, the SMSF is at risk of being made non-complying unless that member’s benefits are rolled out (which usually requires assets to be sold) or an APRA approved trustee is appointed.
An Enduring Power of Attorney (EPOA) gives a member the ability to appoint someone to act as trustee (or director of the corporate trustee) for them should they become incapacitated. This would result in the SMSF being able to continue it’s activities as before.
An EPOA can also assist a SMSF with satisfying residency requirements if a trustee is overseas for an indefinite period of time. In this situation, it may be possible for the EPOA to replace the absent trustee so that the SMSF can continue to function.
Given the obligation and responsibility involved, care should be taken when choosing a suitable EPOA but it can be a valuable option to avoid any compliance issues in a SMSF which may arise in the event of incapacity. Existing EPOA arrangements should also be reviewed regularly to ensure that they remain suitable to achieve the desired outcomes.
If you require assistance in determining if all the necessary instructions are in place to ensure your SMSF remains compliant speak with our Superannuation Partner Clive Todd on 07 3218 3900 or request a complimentary SMSF health check.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.