SMSFs and managing incapacity: A critical component of holistic estate planning
While enduring powers of attorney (EPA) are generally a key component of a holistic estate plan, it is critical to remember that special rules apply in relation to incapacity and self-managed superannuation funds (SMSF).
As SMSF specialists know, a superannuation fund is an SMSF where all members of the fund are trustees or directors of a corporate trustee – see sections 17A(1) and (2) of the Superannuation Industry (Supervision) Act 1993.
A super fund is, however, also a complying SMSF where an EPA of a member is a trustee or a director for a corporate trustee in place of a member during any period that attorney has an EPA in respect of a member of the fund who themselves is unable to act (see section 17A(3)(b)(ii)).
In a recent View Legal webinar, team members Matthew Burgess and Melissa Toms said that it is critical to remember that in order for section 17A(3) to apply, the person seeking to become a trustee or director needs to be appointed under an EPA of the member who cannot act.
A general power of attorney will not be sufficient.
Practically, the only way in which an attorney under an EPA can act in the role as trustee for an SMSF is for the existing member to be removed from their role as trustee (or director of the corporate trustee as the case may be), and for the attorney under that member’s EPA to be appointed as the new trustee or director in place of the member.
In addition to satisfying the statutory provisions, the trust deed for the SMSF must also be complied with.
Importantly, the attorney for the member performs their duties as a trustee of the SMSF, or a director of the corporate trustee of the SMSF, pursuant to their appointment to that position, rather than as an attorney or agent for the member.
The Tax Office has detailed its views in this area in Self-Managed Superannuation Funds Ruling SMSFR 2010/2.
Burgess and Toms confirmed that the legislation allows six months for an SMSF to ensure it is compliant. However, it does not automatically appoint the attorney as the replacement trustee or director. Therefore, to ensure compliance the provisions of the trust deed for the SMSF and, where there is a company acting as trustee, its constitution as these documents will regulate exactly how the attorney must be appointed.
They also confirmed that each of the above points is confirmed in the Tax Office’s release SMSF Ruling 2010/2.
Helpfully, SMSFR 2010/2 confirms the approach to take in a number of common factual scenarios for SMSFs, for example:
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.