It is likely only a minority of trustees have planned for incapacity, with DBA Lawyers director Bryce Figot describing trustee incapacity as the “elephant in the SMSF room”.
“[Except] unlike the elephant in the room, where everyone is aware of it but they’re not talking about it, I think there’s a good chunk of people who just haven’t even turned their mind to it,” Mr Figot told SMSF Adviser.
Having an enduring power of attorney in place for when a trustee becomes unable to act on their own behalf is a fundamental step in the planning process, said Mr Figot. However, anecdotal evidence suggests a majority of trustees do not have this arrangement in place.
“There absolutely has to be an enduring power of attorney in place. That’s just not negotiable. [Trustees] have to do that, or else they’ll definitely leave their loved ones in a bind during a very difficult stage of their life,” he said.
If a fund does not have an enduring power of attorney in place and a trustee loses capacity, the fund may struggle to meet the definition of an SMSF, which could in turn result in the loss of complying status.
“Having enduring powers of attorney in place goes a long way to ensure that upon loss of capacity the fund continues to be an SMSF, and thus continues to be a complying superannuation fund and retain its tax concessions,” Mr Figot said.