Aaron Dunn, CEO of Smarter SMSF, said when the relevant ruling in regard to EPOs first came into play in 2010, it did not have as much application as it does now, but the ruling still provides guidance on how to implement and manage EPOs in a fund.
Tim Miller, head of technical and education for Smarter SMSF, said it was an “interesting and very important” ruling with reference to the powers under 17A (iii) which gives the power to appoint somebody other than the member as trustee of the fund.
“It gives that guidance around the piece, that whilst we grow up on the concept that all members are trustees, and all trustees and members, there are circumstances that provide otherwise, and some of those circumstances are predetermined such as age and loss of capacity,” Miller said.
“It also gives the scope under the enduring power of attorney to just replace yourself as trustee with your attorney, whilst everybody has full capacity. It not only gives you an opportunity to say when the time is right to contemplate putting someone else in, but it also then enables situations where you might struggle to meet the central management of control requirements.”
Miller said the ruling is becoming more important and there are an increasing number of situations where members will either lose capacity, or have lost capacity and want to act before that point.
“That then leads to other interesting elements. The flow-on from that ruling is you’re appointed in your own right as trustee of the fund, so you’re no longer acting on behalf of anybody else and that can, in itself, create problems, either when somebody regains capacity, or they maybe choose to try to remove that person as trustee,” he said.
“Or in other events, such as death, you have the whole situation of who’s the legal person or representative versus who are the existing trustees of the fund?”
Dunn added that the ATO has also confirmed a fund may have multiple attorneys step in and the law states that even though there might be multiple attorneys, the member can decide to have one and still satisfy that section 17A(iii).
“However, there are some really important aspects of that, and that really goes back to the point that in so far that that person steps into the fund in their own right, and therefore the decision making ultimately rests with that one individual,” Dunn said.
“It does become a very important decision at that point in time, that if you have multiple attorneys that are meant to be acting jointly with you, is that actually going to be replicated back in the fund, or is someone just coming in because it’s convenient?”
Miller said the concept of multiple EPOAs can cause some potential issues.
“For example, if you’ve got a family member who is a member of the SMSF and they have three children all acting as the executors of the member’s will, but also as under EPOA who do they choose? Has the member discussed SMSF trusteeship with the people appointed as the legal personal representative in their will?” he said.
“Additionally, [you should ask] who have they appointed as legal personal representative during and due to an enduring power of attorney? Either way, this may result in that person potentially needing to step in as trustee of the SMSF, at which point they have to consent to doing that. It’s not only an appointment document. There’s also a consent element to this whole transaction as well.”
As well as consent, Dunn said the person stepping into the role would also need to consider several administration functions that include things such as obtaining a director ID.
“They need to be eligible to be a trustee in the first place as well. So you’ve got your disqualification issues and whether they can act in that capacity. It’s not an easy process,” he said.
“But I think one of the important things is, when we conceptually talk about all trustees must be members and directors or trustees, we can get these interesting scenarios where we might end up with a single member left in the fund, but that single member, whilst they might have capacity, might step away from that role, and we might actually have two kids in there who really have no understanding of how the SMSF was running.
“Putting all the building blocks around the documentation becomes really important.”
