One of the hard questions that is often asked about self-managed superannuation funds is, what happens to the fund where a trustee is unable to act as an individual trustee or director of the trustee company? This could occur in the case of a trustee’s mental incapacity due to an accident or illness, or where a trustee travels overseas for a prolonged period and the superannuation or corporation’s legislation require decisions to be made ‘in Australia’.
The legislation recognises these situations and provides exceptions to the general rule, which requires a member of an SMSF to be an individual trustee or a director of the corporate trustee. A breach of this rule could cause the fund to cease as a complying superannuation fund and lead to high tax rates being imposed on the fund’s assets. Luckily, there is one useful exception that allows a trustee or director to grant an Enduring Power of Attorney (EPOA) to a trusted person to takeover as their legal personal representative (LPR) where they are incapable or unable to act in that position.
The superannuation legislation says that an LPR of a member is the executor of the member’s will or administrator of the estate of a deceased person, and it also includes the trustee acting for a person with a legal disability or a person holding an enduring power of attorney granted by the member. In certain situations, such as when members may travel overseas, the member’s LPR takes the place of the trustee or director which helps maintain the compliance status of the SMSF.
An LPR may only be appointed under a valid EPOA, which takes place immediately. In some Australian states it is possible for an EPOA to have effect from a certain date or upon a certain event occurring. Also, it is possible to set a time or event on which the EPOA will cease to have effect, such as the grantor’s return to Australia. The importance of having an EPOA in place can allow the SMSF to operate effectively during periods where the trustee or director is absent, invalided or unwilling to act. A fund that fails to meet the trustee requirements may have issues in making decisions about investments, administration and face compliance issues in relation to lodging ATO and ASIC documents.
If the trustee of the SMSF is a company and a director may not be able to act in that position due to their absence, another option is that it is possible to appoint an alternate director in the director’s place. To allow this to take place, the director will grant an EPOA which will allow the alternate director to be appointed. ASIC and the ATO will be notified of the appointment of the alternate director.
Checklist for an EPOA of an SMSF
• An EPOA granted by an individual trustee or director of an SMSF allows a person to act in their place when they are not able to make decisions themselves due to absence, illness or infirmity.
• Whoever is named under the appointment of the attorney could be the person’s spouse, adult child or children, relative, friend or professional person, such as a lawyer or accountant. It is possible for more than one person to be appointed as an attorney, for example, all of the trustee’s adult children may be granted the power or attorney and take their place as individual trustees or directors, which can allow decisions about the SMSF to be made jointly.
• Anyone appointed as an attorney must be an adult, have the capacity to make decisions and consent to be an attorney for the trustee or director.
• The person appointed as a trustee, director or alternate director is required to understand the superannuation legislation as it applies to SMSFs and sign a Trustee Declaration as required by the ATO.
By having a plan in place to secure the future of the SMSF risks can be minimised, such as fulfilling compliance obligations and the capacity to deal with the fund’s administration. Trustees can minimise this risk at the appropriate time by granting an EPOA to a competent and willing person who is able to look after the fund and the payment of benefits, as required by the tax and superannuation legislation.
Subscribe below Market Watch to receive my latest articlesGraeme Colley, Executive Manager, SMSF Technical and Private Wealth SuperConcepts
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