In an online webinar, Accurium head of education Mark Ellem explained that while the standard rule for SMSFs with individual trustees is that there must be at least two trustees, there is an exception where an enduring power of attorney is involved.
Mr Ellem responded to a question involving an SMSF with two individual trustees who are father and son. The father is now mentally incapacitated, and the son was appointed as an enduring power of attorney before that occurred.
He was asked whether the SMSF in this scenario would still meet the definition of an SMSF.
In this type of situation, Mr Ellem said the SMSF will still meet the definition under the law.
“The standard rule states that if you’ve got a single-member fund, there must be a minimum of two individual trustees, but the exception in 17A allows for the attorney in an enduring power of attorney to be appointed in their place,” he explained.
“In this case, the son is the attorney but has already been appointed as an individual trustee, so you have the unusual situation where you have a single individual trustee of an SMSF.”
Mr Ellem said that while this is fine under the 17A definition, it’s still important to go back and look at what the trust deed says.
“The trust deed might state that you have to have a minimum of two individual trustees. So you might be okay in terms of 17A, but you’ve breach of your deed,” he cautioned.
“In that situation, you might want to find another person to be appointed as the second trustee, so the son is there effectively as the member as attorney and then you appoint a second trustee.
“In my view, under the law it will comply, but you need to check the trust deed to see whether there’s any restrictions.”
Can’t agree that a 1 member fund can appoint a (3rd) trustee when there is a PoA acting for 1 member and a 2nd individual trustee already appointed. Sure they may be the same person but they are acting in different roles. Conceptually it is similar to the member and the trustee being required to be the same person however, they have very distinct roles within the fund.
If the trust deed says otherwise, it should be amended otherwise the fund could be in breach of the law. The deed is the base authority and it can restrict the powers but cannot extend them. The proposal of appointing an additional trustee in the circumstances described here would be extending the law.
What could have been suggested here is that care is taken when the trustee is acting to ensure that the signing of documents is done in both capacities The PoA is acting on behalf of the incapacitated member (standing in their shoes), the 2nd trustee is in the same role they were in prior to the capacity. Both roles must consider the fund as a whole etc.