SMSFs and Enduring Powers of Attorney: An Essential Safety Net
You might be familiar with Enduring Powers of Attorney (EPOA) as an important tool that can be used to nominate who will make key financial and medical decisions on your behalf in the event you are unable to do so yourself. What may be less familiar is how important it is to have a valid EPOA in place if you are also a member of a SMSF.
One of the fundamental rules of SMSFs is that members of a fund must also retain control of the fund either as individual trustees, or as directors of a corporate trustee. Where a member is not a trustee/director, there will be a breach of superannuation legislation that could cause the fund to be non-compliant and lose its concessional tax status.
This commonly happens when a member loses capacity and is unable to make decisions as trustee/director of the fund. Fortunately, superannuation legislation allows for a person holding a valid EPOA over a member who has lost capacity to assume the role of trustee/director and protect the fund’s compliance. Where the fund members are also nominated as attorney for each other under an EPOA, this transition can be seamless.
For example, Jane and Bill are members of an SMSF and directors of the corporate trustee that controls their SMSF. They have valid EPOA documents in place appointing each other as attorney. Bill loses capacity due to illness, meaning he cannot act as director of the trustee. This could lead to a breach of superannuation legislation, but thanks to the valid EPOA, Jane can act as director in her own right, and also as director on behalf of Bill. Bill can be removed as director while continuing as a member of the fund, and the fund stays compliant.
The same process occurs where a member is reluctant to act as trustee/director, or where a member plans to spend an extended period of time overseas. Superannuation legislation requires the management and control of a SMSF to be in Australia, and this obligation is met where an overseas member has a valid EPOA in place appointing a person who remains in Australia.
If you would like to discuss EPOA documents and what they can achieve for you, please contact Partners Legal.
*This article is intended to be general commentary only and should not be taken as legal advice. Before taking action, ensure you obtain legal advice in relation to your specific circumstances.