Speaking at a Super Central seminar last week, Brian Hor, Townsends Business & Corporate Lawyers’ special counsel for superannuation and estate planning, noted the prevalence of age-related diseases such as dementia, which is the single-greatest cause of disability in older Australians.
Without medical breakthrough, the number of Australians with dementia is expected to reach almost 900,000 by 2050, Mr Hor noted.
Mr Hor said there are several risks posed by incapacity, including documents that require two signatures, which is typical of a husband and wife fund, can’t be executed if one member is considered incapacitated.
This opens up the potential for the ATO to render the fund non-complying for loss of SMSF status, Mr Hor said.
Mr Hor pointed to the benefits of having an enduring power of attorney (EPOA) in place, which effectively allows a member to give a person of their choice authority to make decisions in relation to the SMSF on their behalf.
With an EPOA, the SMSF can maintain its complying status, as the person with the EPOA authority can conduct fund operations without contravening the legislation.
Townsends Business & Corporate Lawyers principal Peter Townsend previoulsy told SMSF Adviser trustee incapacity is an overlooked part of the estate planning process.
“One minute everything is going along solidly, and you think 'I am going to live till 85 and have a wonderful retirement', and then 10 seconds later you have a stroke and everything changes overnight,” he said.
“You have to ignore the ‘likely’ result and instead deal with a ‘possible’ result, which means setting up structures to handle trustee incapacity at the very time the SMSF is set up. That way there are no gaps,” he said.