Every SMSF trustee should have an Enduring Power of Attorney
By Karen Dezdjek on behalf of Firstlinks
If you’re an SMSF trustee, there are several vital things to consider when it comes to your estate and succession planning.
COVID-19 shows need to prepare
Your will enables assets to be distributed in accordance with your wishes when you die, and a binding death benefit nomination will direct your super and any insurance benefits to your chosen beneficiary.
However, many people are not prepared for what happens if a trustee is incapacitated and not able to act either on a temporary or permanent basis.
COVID-19 and the events of 2020 are an indication of why now, more than ever, SMSF trustees need to be prepared for the ‘unexpected’ by having an Enduring Power of Attorney (EPOA) in place.
An Enduring Power of Attorney is a legal agreement that enables an individual to appoint another person or people to make financial, personal, medical or property decisions on their behalf in the event that the individual is unable to act. This appointment can be either on a temporary or permanent basis depending on the reason for the appointment.
Importantly, superannuation law allows an EPOA to act in the place of the member without causing the fund to cease to be an SMSF.
Different to a Power of Attorney
Many people believe that if they have a Power of Attorney in place their SMSF is secure. However, what happens if mental capacity is lost? Unfortunately, in this circumstance the Power of Attorney ceases to operate which is why it is important to have an EPOA in place.
All members of an SMSF must be trustees, but to be a trustee of an SMSF an individual cannot be under any legal disability including mental incapacity. If a trustee becomes unable to act or loses capacity, they must be removed, and someone will need to be appointed either temporarily or permanently in the trustee’s place until the individual can act again on their own.
A person acting as an Enduring Power of Attorney will take on all responsibilities of being a trustee. They will make financial decisions on the members’ behalf. This will include the acquisition and disposal of investments, transacting on the fund’s bank account and paying all expenses of the fund including pensions. They will also be responsible for the signing of financial statements, annual returns, and other mandatory compliance minutes required.
In other words, they will oversee the day-to-day running of the SMSF in much the same way the member themselves did.
As blended families are becoming more prevalent, having an EPOA can avoid unnecessary friction or certain unanticipated actions being taken.
Anyone can be appointed as an EPOA and more than one EPOA can be nominated to act jointly in making the decisions. It is also a good idea to appoint a substitute where possible should one of the EPOAs not be able to take on the responsibility of being a trustee.
If something adverse happens without an EPOA in place, there can be dire consequences. For example, if a member resides in NSW an application would need to be made by the next of kin to the NSW Civil and Administrative Tribunal to obtain an order to enable the SMSF assets to be dealt with.
If you have an SMSF, don’t leave your assets to chance and arrange not just a Power of Attorney, but an Enduring Power of Attorney sooner rather than later.