Powers of Attorney and SMSF members

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Under the Superannuation Industry (Supervision) Act 1993 (“SISA”) all members of a self-managed superannuation fund (“SMSF”) must be either a trustee or a director of the corporate trustee (collectively referred to for the rest of this article as “trustee”). Where a member loses capacity, generally the SMSF trust deed will stipulate that they immediately cease being a trustee. In such a case, this realistically means the fund becomes a non-complying SMSF.

SISA does provide a number of exceptions in this scenario. One exception is that if the member appoints a legal personal representative (“LPR”) within six months of their cessation as a trustee then the SMSF will continue to be a complying fund. The LPR can be an attorney appointed by the member under an enduring power of attorney (“EPOA”).

Alternatively, if no EPOA has been appointed and a member becomes incapacitated an application can be made to the NSW Civil and Administrative Tribunal for the appointment of a private financial manager. This process can be time consuming and often exceeds SISA’s six month period. Further, the member may not be choosing the person they believe would be their most appropriate replacement as trustee.

In order to meet the requirements set out in SISA and the ATO’s SMSF Ruling SMSFR 2010/2, the following conditions must be satisfied:

  • A member who has lost capacity must cease to be a trustee of the SMSF.
  • The LPR must be appointed as a trustee of the SMSF and the appointment must be in accordance with the trust deed, the constitution of the trustee company if any, SISA and any other relevant legislation such as the Powers of Attorney Act 2003 NSW and the Corporations Act 2001 Cth.
  • Where the EPOA appoints multiple attorneys, one or more can be appointed as trustee in place of the member.
  • A member is also able to execute an EPOA in favour of an existing member who is trustee.
  • The donor member ceases to be trustee or director of a corporate trustee and the LPR will be considered to be appointed in their place.
  • The LPR will perform their duties as a trustee of the SMSF pursuant to their appointment to that position, rather than as agent for the member.

An EPOA will not automatically allow the attorney to exercise the principal’s powers as a trustee of the SMSF. It will allow the attorney to exercise the rights attached to membership of the SMSF which will typically enable the attorney to be appointed as a trustee of the SMSF. The most recent trust deed of the SMSF should be provided for review at the time of preparing the EPOA.

An EPOA will not automatically allow the attorney to exercise the principal’s powers as a director of a trustee company. However, it will allow the attorney to exercise voting rights attached to the shares held by the member in the trustee company. This will usually enable the attorney to be appointed as a director of the trustee company. The constitution of the trustee company should also be provided for review at the time of preparing the EPOA.

This can be a very complex area of the law, and an extremely important aspect to get right. Please don’t hesitate to get in touch with us if you have any questions or need some advice.

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