Lawyer outlines ‘critical’ incapacity planning steps

One industry lawyer has outlined “critical” and often-missed steps SMSF practitioners should take with their clients in planning for a trustee’s incapacity to avoid dealing with the courts.

Speaking at the SPAA State Tech Conference last week, Caroline Harley, lawyer with Townsends Business & Corporate Lawyers, noted that to show a person has lost capacity would usually involve an assessment of the person by one or more professionals, such as a general practitioner.

“It is important that if the assessment is being presented to a Court or Tribunal that you check the requirements for professionals who are recognised and accepted by the relevant body in that state or territory,” she said.

 

Ms Harley said that to prepare for loss of capacity, a practitioner should consider what is each SMSF’s ‘Armageddon’, which she describes as the “worst case scenario” for the SMSF. This may include a member’s loss of mental or physical capacity or death.

Practitioners should discuss what their client would want to happen in an ‘Armageddon’ situation, she said, with examples including transferring to a small APRA fund or winding up the SMSF.

Practitioners should then familiarise themselves with the rules and processes of the fund, and amend the trust deed or constitution if it results in “unsatisfactory” outcomes for their clients.

Each member of the fund should also have a “validly executed” enduring power of attorney (EPOA), Ms Harley said, noting that if a client moves interstate the acceptance and operation of the EPOA in the new location should be checked.

Practitioners should ensure that binding death benefit nominations are up to date, she added.

“Make sure there is a valid binding death benefit nomination signed now and that it will not lapse – SMSFD 2008/3 clearly states that SMSF trust deeds can provide that nominations made to trustee can be non-lapsing,” Ms Harley said.

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