Cooper Grace Ward Lawyers partner Scott Hay-Bartlem said that section 17A of the Superannuation Industry (Supervision) Act 1993 sets out the member trustee rules which state that all members have to be trustees and all trustees have to be members.
However, there is an important exception listed in these rules under 17A (3)(b)(ii), Mr Hay-Bartlem said, which states that where a legal personal representative has an enduring power of attorney in respect of a member of the fund, then are a trustee.
“So, if Dad is a trustee of the fund and has lost capacity and he has appointed someone as his attorney, Dad stops being the trustee and the attorney comes on as the trustee instead,” the partner explained to delegates at the SMSF Summit in Sydney.
A lot of SMSF trust deeds, however, do not allow clients to have attorneys as directors or trustees, the partner said, which means a new trust deed has to be done.
“You may have a provision that says that if you cease to be a member then you cease to be a trustee. It could be anywhere in the deed, so you need to pay really close attention to the deed,” Mr Hay-Bartlem warned.
“Some examples are deeds that recite part of 17A but not all of it. You do not need to have part 17A in your deed.”
Mr Hay-Bartlem said that he comes across a lot of deeds that have the trustee member rules, but they forget the exception of 17A (3)(b)(ii), which includes death, non-residency and incapacity.
“It’s really important to have both provisions, or it can give you lots of problems,” the partner warned.
Most of the SMSF deed amendments that I’ve seen are a full replacement, rather than just adding or deleting clauses. Technically they are just an amendment, but the result is a ‘new deed’.
The real issue that is completely missed here is how a new Trustee or director of a SMSF Corporate Trustee is removed and appointed. You can put all the section 17A in that you want but if your power of appointment and removal clause does not work forget it. I just ran across a case where a lawyer/executor illegally made themselves a Trustee on the death of the member while the appointment clause required the remaining Trustee (their spouse) to appoint any Trustee. This did not happen and would invoke section 55(1) and possibly section 202 – criminal penalties for fees charged.
“A lot of SMSF trust deeds, however, do not allow clients to have attorneys as directors or trustees, the partner said, which means a new trust deed has to be done.”
Ummm….couldn’t you just amend the existing deed, obviously before the incapacity arises…….