Michael Hallinan, special counsel for SUPERCentral, says when an SMSF member loses capacity, several considerations must be made, and reviewing the trust deed should always be first.
“The governing rules of a fund will usually mirror the Superannuation Industry (Supervision) Act 1993 requirements in relation to the appointment of a trustee/director of a fund and contain provisions when it comes to who can act as a legal personal representative of a fund and when a person ceases to be a member and trustee/director of a fund,” Hallinan said.
“You should also refer to the corporate trustee’s constitution to determine whether the member’s office of directorship will automatically vacate once they become mentally incapacitated.”
However, he said there can be some difficulties if a member wants to appoint the NSW Trustee and Guardian to act as attorney.
“The definition of an SMSF contained in s17A(1) of the SIS Act applies to funds with more than one member. It states, among other things, that if the trustees of the fund are individuals, each individual trustee of the fund must be a member of the fund and each member of the fund must be an individual trustee.”
“On the other hand, if the trustee of the fund is a corporate trustee, then each director of the corporate trustee of the fund must be a member of the fund, and each member of the fund must be a director of the corporate trustee of the fund.”
Section 17A(3) of the SIS Act provides some exceptions to the requirements in s17A(1) of the SIS Act stating that an SMSF will continue to qualify as a self-managed fund if the “legal personal representative” is a trustee of the fund or a director of the corporate trustee of the fund during any period when the member is under a legal disability.
“The term ‘legal personal representative’ is defined in the SIS Act to include ‘the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person’,” Hallinan said.
“If the member no longer has mental capacity, a legal personal representative must be appointed as a director of the corporate trustee of the fund so that the fund continues to satisfy the definition of an SMSF under s17A of the SIS Act. The question is whether the NSW Trustee and Guardian can be appointed as a director of the corporate trustee of the SMSF when a member no longer has mental capacity.”
Hallinan said the SIS Act defines an “individual trustee” to mean “an individual who is a trustee of the fund”.
He noted that section 201B(1) of the Corporations Act 2001 says that only an individual who is at least 18 may be appointed as a director of a company.
“The NSW Trustee and Guardian does not meet the definition of an ‘individual trustee’ as defined in the SIS Act and cannot be considered an ‘individual’ for the purpose of s201B(1) of the Corporations Act. Instead, it is a statutory corporation and its status is that of a NSW government agency.”
“Therefore, the NSW Trustee and Guardian cannot be appointed as a co-trustee of an individual trustee fund or as a director of a company. Where the trustees of the fund are individuals the NSW Trustee and Guardian may formally appoint either a delegate or its delegate may sub-delegate an individual as a co-trustee of an individual trustee fund.”
However, in a corporate structure, the NSW Trustee and Guardian may also formally appoint a delegate or its delegate may sub-delegate an individual to act as a director who is authorised to exercise in part the powers and functions conferred on the NSW Trustee and Guardian.
“It is important to note that s11(1) of the Trustee and Guardian Act 2009 (NSW) empowers the NSW Trustee and Guardian to act in its capacity as a trustee, agent or attorney. Section 11(3B) of the Trustee and Guardian Act also permits the NSW Trustee and Guardian to ‘prepare instruments that create powers of attorney and carry out professional services in connection with powers of attorney’.”
“Section 57(1) of the Trustee and Guardian Act reinforces that the NSW Trustee and Guardian ‘has, and may exercise, all the functions the person or patient has and can exercise or would have and could exercise if under no incapacity’.”
The NSW Trustee and Guardian may rely on sections 11(3B) and 57(1) of the Trustee and Guardian Act to create an enduring power of attorney (as required under s17A(3)(b)(ii) of the SIS Act) on behalf of the member to appoint an individual to act as their enduring attorney so that the appointment satisfies the definition of a legal personal representative under the SIS Act.
“Alternatively, the NSW Trustee and Guardian could delegate an individual to take up the role as director of the corporate trustee of the fund,” Hallinan added.
“The appointment of the individual as a director of the corporate trustee would also need to satisfy the definition of a legal personal representative under the SIS Act for the fund to continue to satisfy the definition of an SMSF.”
