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Critical steps outlined for dealing with loss of capacity, EPOAs

Critical steps outlined for dealing with loss of capacity, EPOAs

Peter Johnson
Miranda Brownlee
23 April 2019 — 2 minute read

Navigating Corporations Law and the SIS Act can be confusing when replacing an incapacitated director or trustee of an SMSF with an enduring power of attorney, and it’s important the correct process is followed, says a technical expert.

Speaking in a recent webinar, Advisers Digest director Peter Johnson explained that there are some important steps with the process of replacing an incapacitated SMSF member with an enduring power of attorney.

Mr Johnson gave an example of a four-member super fund with a mum, dad and two adult daughters. The mother has lost capacity and been removed as a director and her husband has stepped in by way of an enduring power of attorney.

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“The husband is already one of the directors, so do we remove the wife and make no changes? Or do we leave the wife as a director and appoint the husband a second time,” he questioned.

“[With the first option], how do we distinguish between him and acting for himself, and with the second option, can she still be a director on ASIC’s records while actually being removed as one by the company?”

Mr Johnson said that the SIS Act only talks about you comply with the requirements to be an SMSF.

“It says that all members must be directors, all directors must be members; however, a person can be a director on behalf of a member, provided they are their personal legal representative, by way of holding an enduring power of attorney,” he said.

“We know the husband can be the director on behalf of the wife by way of having an enduring power of attorney.”

However, he is already a director, and from a Corporations Law perspective, it is not possible to appoint someone as director when they are already a director, Mr Johnson explained.

“So, the first option is the correct option; all you can do is remove the wife. She is able to remain a director on ASIC’s records without actually removing her, but if you’ve removed her then you may have late fees with ASIC if you haven’t notified them,” he said.

“You’ve also got an issue with the company, but when the auditor looks at it, they’ll see that the husband is a director.”

Mr Johnson said that SMSF clients in this situation should make a minute to note that the dad is now acting as trustee on behalf of his wife for the purposes of section 17A of the SIS Act.

SMSF clients should also be aware, he said, that having an enduring power of attorney does not allow them to walk into a trustee meeting on behalf of the person they are acting as attorney for.

“An enduring power of attorney only allows you to step into the shoes of the person but not the personal appointment,” he said.

“If you’ve got someone who’s a director or a trustee, and you need to replace them with an enduring power of attorney, youve got to go through the process of resigning them and appointing the attorney as a trustee or as a director; you cant just turn up on the day and say, ‘I'm the attorney, Im acting as trustee on their behalf’, because trust law doesnt allow that.”

It is also important to understand, he said, that ASIC allows an individual to the trustee in place of the member.

“You cant have the member and their enduring power of attorney, but of course, the enduring power of attorney could be another member,” he explained.

“Let’s say myself and my wife are the trustees and members of the SMSF and my wife has granted our kids EPOA. We cant have myself, my wife and our kids as the trustees where my wife is a trustee and the kids on her behalf. You cant do both; it’s one or the other.”

Critical steps outlined for dealing with loss of capacity, EPOAs
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