When an EPoA steps in as SMSF Trustee

Michelle Bromley CFP®, Director – Strategy and Advice

A person who holds an Enduring Power of Attorney (EPoA) in respect of a member is allowed to be a Trustee, or the Director of a Corporate Trustee, of a Self Managed Superannuation Fund (SMSF) in place of the member. However, you must have appropriate documentation in place to suit your Trustee arrangement; further consideration and documentation may apply.

What is a Power of Attorney? 

A Power of Attorney is a legal document under which you can authorise another person to act on important financial, personal, and legal matters in your place.  This person is known as your Legal Personal Representative (LPR) who then has the power to do almost anything in relation to these matters that you could lawfully do yourself. 

However, a general Power of Attorney has limitations, importantly, it ceases immediately if you lose your decision-making capacity.  However, a similar legal document – an Enduring Power of Attorney (EPoA) – can continue to operate even after you can no longer make your own decisions. 

Since your LPR under an Enduring Power of Attorney could exercise significant power over your affairs, the person you nominate should be trustworthy, familiar with your needs, circumstances, and preferences, but also be objective in making decisions that are in your best interests. 

What is the importance of having an LPR in relation to my SMSF? 

One of the important rules with an SMSF is that all members must be Trustees, or Directors of the Corporate Trustee.   

However, most SMSF Trust Deeds and Company Constitutions will include a clause stipulating removal of a Trustee or Director who no longer has the capacity to fulfil their role. 

Therefore, all individual SMSF Trustees should nominate an LPR under an Enduring Power of Attorney to take over their Trustee responsibilities in case they cannot continue to carry out the role of Trustee, to avoid their SMSF becoming non-compliant.  

This situation could occur from sudden illness or injury, cognitive decline, or when a trustee relocates overseas.  If a Trustee dies or becomes disqualified from being an SMSF Trustee, different rules apply (beyond the scope of this article). 

Replacing the incapacitated Trustee 

There are several things that an LPR is not able to simply step in and do, including exercising Trustee powers or carrying out the duties of a company Director, as these cannot be delegated. 

Therefore, the incapacitated member must be removed as Trustee or Director of the Corporate Trustee, and their LPR must be appointed as Trustee or Director in their place, to ensure that Trustee responsibilities can continue to be met.   

However, there are slightly different requirements for a Fund with Individual Trustees versus a Corporate Trustee. 

Individual Trustees 

In the case of Individual Trustees, the SMSF Trust Deed must allow a LPR under Enduring Power of Attorney to be appointed as a Trustee.  If not, a Trust Deed amendment will be required. 

If the EPoA is granted to another existing member of the Fund, the incapacitated member must still resign as (or be removed from) their position Trustee, but no additional changes are needed.   

However, if EPoA is granted to a non-member of the Fund then the LPR must be appointed as a Trustee via a Deed of Resignation and Appointment and must lodge a Trustee Declaration Form with the ATO.   

Where a new Trustee is added, the name registration of the SMSF assets must be updated with the providers of cash accounts and investments.  Many providers may require new accounts to be opened in the names of the current Trustees with assets transferred across to the new accounts. 

Corporate Trustee 

In the case of a corporate trustee, the Company Constitution may contain a specific power for an individual in their capacity as Director to appoint an EPoA or an alternate Director in their place. Otherwise, the company must have its own Corporate Power of Attorney to make this change.   

If the LPR is an existing Director of the Corporate Trustee, the only change required is removal of the incapacitated Director by lodging a Removal of Director form with ASIC. However, appointing a completely new Director requires both Removal and Appointment of Director forms to be lodged with ASIC and the new Director must also lodge a Trustee Declaration Form with the ATO. 

Where a completely new Director is appointed, they will also need to be added as signatories on cash accounts and investments, which requires additional paperwork. 

Time Limits 

Generally, an SMSF has 6 months from the date on which the member becomes incapacitated to replace them as Trustee. However, this can be a lengthy process so should be commenced quickly as significant additional paperwork may be required. 

Once the new Trustee or Director of the Corporate Trustee has been appointed, the Trustee Declaration form must be lodged at the ATO within 21 days. 

Where a member is temporarily moving overseas, they currently have a safe harbour period of 2 years during which they generally cannot contribute to their SMSF but can continue to manage the SMSF while offshore.  The Government has proposed to relax these rules to allow for a longer period of up to 5 years during which contributions will also be able to be made. These measures are not yet law but are expected to be enacted by 1 July 2022. 

What to do? 

Speak to your Solicitor about appointing a Legal Personal Representative who can step in to carry out your Trustee or Directorship responsibilities in best interests.   

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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