Every person should consider an enduring power of attorney. As well as the ‘usual’ risks of who looks after your affairs, members of SMSFs also risk compliance issues for their fund if they do not have a valid enduring power of attorney in place.
If a member becomes incapacitated, then, practically, they can no longer be a trustee or director of a trustee company. This means that the fund can no longer satisfy the member and trustee rules found in section 17A of the Superannuation Industry (Supervision) Act 1993 (SISA). The practical effect of this is the member must leave the fund and must take their benefit as a lump sum, appoint an approved trustee or roll to a retail fund.
If a member has appointed an attorney under an enduring power of attorney, then the attorney can become the trustee or director of the trustee company in the place of the member. This allows the trusteeship to be restructured with the attorney replacing the member and the member to remain in the fund.
It is important to seek advice to make sure the trustee change complies with the provisions of the trust deed or the constitution of the trustee company, and that the trust deed for the fund allows attorneys to be trustees or directors of a corporate trustee. There are many trust deeds that do not provide adequately for this situation, which can have unpleasant consequences.
Acting as a trustee under the EPOA
Once appointed, the attorney performs their duties as trustee (or director of the trustee) as a trustee or a director rather than as attorney or agent for the member. The attorney will be subject to the obligations of a trustee and must sign the trustee declaration stating that they understand their duties as a trustee. The attorney cannot be a disqualified person and must be eligible to be appointed as trustee.
Form of the enduring power of attorney
The form of the power of attorney is also very important. A power of attorney that is not an ‘enduring power of attorney’ will not be sufficient. Each state and territory in Australia has a prescribed form that must be used for an enduring power of attorney to be effective. If the enduring power of attorney appoints multiple attorneys, then any attorney validly appointed can act as trustee or director of the trustee in the member’s place.
An enduring power of attorney can also assist with satisfying residency issues for SMSFs. For example, if a husband and wife (trustees of their SMSF) were transferred overseas for an indefinite period of time, they could continue to satisfy the definition of a SMSF if they have a valid enduring power of attorney in favour of another person, they both resign as trustees and they appoint that person as a trustee in their place.
More information and application forms
An enduring power of attorney is a vital document for all SMSF members, is very simple to organise and should be mandatory if the members wish to avoid any compliance issues on their incapacity.
Members can either prepare an enduring power of attorney as a stand alone document (click here for the application form) or consider it in the context of their estate planning (click here to view our estate planning website).
If you would like more information, please contact a member of our superannuation and estate planning team.