Our friends over at MistryFallahi Lawyers & Business Advisors have put together a great article on SMSFs and the requirement for members to have an enduring power of attorney.
Member Obligations
Pursuant to section 17A of the Superannuation Industry (Supervision) Act 1993 (SIS) all members of SMSFs are required to be a trustee or a director of the trustee company.
In the event a member of the Self-Managed Super Fund loses the capacity to make decisions as a trustee or a director of a trustee company, the SMSF may become non-compliant and be in breach of the SIS. This impact to a SMSF is likely to have significant consequences such as:
(a) The member will no longer be able to act as a trustee of the SMSF pursuant to the SIS and the SMSF trust deed;
(b) The members will no longer be able to be a director of the trustee company in accordance with the disqualifying provisions of the company constitution;
(c) The SMSF may no loner be eligible to receive the superannuation guarantee contributions and may lose its tax concessional status; and
(d) The SMSF may be subject to penalties and fines from the Australian Tax Office.
Solution: Legal Personal Representative
Section 17(3) of the Act provides that the SMSF will continue to comply with the SIS if a member has validly executed an Enduring Power of Attorney appointing a legal personal representative to act on their behalf if they were to lose capacity.
Enduring Power of Attorney
An Enduring Power of Attorney is a document which will continue to operate if the principal member loses mental capacity. In such a case, the appointed attorney can continue to manage and deal with the principal’s member financial affairs both personally and in respect of exercising any voting rights as the director of the trustee company and any rights attached to the membership of the SMSF.
The Enduring Power of Attorney allows the member to elect the most appropriate replacement as trustee to choose a trusted person to make financial decisions regarding their financial and property affairs.
Case Study- Mr and Mrs Non-Compliant SMSF Members
Mr and Mrs Non-Compliant are members of a SMSF and are the only directors of their trustee company. As a result of a motor vehicle accident Mr Non-Compliant loses mental capacity and is in hospital. In accordance with the terms of the constitution of the trustee company, Mr Non-Compliant ceases to be a director of the trustee company and is therefore non-complaint with the SIS. If Mr Non-Complaint had obtained estate planning advice and had properly drafted a Will, Enduring Power of Attorney and an Enduring Guardian, Mrs Non-Compliant would have the powers to appoint herself as a director of the SMSF trustee company on behalf of Mr Non-Compliant and would be able to make lifestyle, medical and dental decisions on behalf of Mr Non-Compliant.
Please feel free to contact MistryFallahi to find out how they can help you and and your SMSF reduce risk.
If you would like to speak with an experienced accountant, or financial planner – with regard to your superannuation or SMSF; please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
