Show search website form Close search website form

You are here: Home » Business Academy » SMSF » The Importance of Having a Power of Attorney in a Self-Managed Super Fund (SMSF)

The Importance of Having a Power of Attorney in a Self-Managed Super Fund (SMSF)

Relevant For:

SMSF trustees and members wanting to mitigate for future incapacity.

Key Points:

  • SMSFs must meet SIS Act conditions to remain compliant.
  • An enduring power of attorney ensures compliance if a member loses capacity.
  • Power of attorney must be current, effective, and comply with state laws.
  • Selecting an appropriate attorney and defining their powers is crucial.
  • Attorneys act as trustees/directors and must follow fiduciary and director duties.
  • Binding death nominations can prevent unintended benefit distributions.
  • Without an enduring power of attorney, legal processes are costly and time-consuming.

Full Article:

Self-managed superannuation funds (SMSFs) remain a popular wealth retention and investment vehicle in Australia. However, they are subject to stringent regulations and increasing legislative complexities. Just as having an estate plan is crucial for addressing death and incapacity, it is equally vital to consider how these events impact SMSFs and to establish an appropriate plan.

Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), an SMSF must meet specific conditions to remain compliant. Each individual trustee must also be a member, and each director of a corporate trustee must be a member (Section 17A SIS Act). If a member becomes incapacitated and can no longer serve as a trustee or director, the SMSF may lose its compliant status. However, the fund will remain compliant if the incapacitated member has an enduring power of attorney in place (Section 17A(3)(b) SIS Act). This ensures that:

  • The fund continues to meet the definition of an SMSF even if a member loses capacity.
  • The member can select a suitable replacement as trustee or director of the trustee.

Key considerations include:

  • The power of attorney must be current and effective before the member loses capacity.
  • It must comply with relevant State or Territory legislation.
  • The attorney must act in accordance with applicable laws and requirements.
  • Members should carefully choose their attorney and consider the scope of powers granted.

A power of attorney may be needed not only due to incapacity but also if a member travels overseas indefinitely or wishes to delegate authority (e.g., to their children).

Compliance with Laws and Requirements

Transferring control of an SMSF to an attorney is not straightforward. It requires more than presenting the enduring power of attorney to financial institutions. The incapacitated member must be removed as trustee or director, and the legal personal representative appointed, following relevant legislation and the SMSF’s governing rules (trust deed and company constitution, if applicable). The law allows a six-month grace period to make these changes, unless the member regains capacity and resumes duties within that time.

The attorney, acting as trustee or director, must adhere to general law trustee fiduciary duties and director duties under the Corporations Act 2001, rather than State or Territory power of attorney legislation.

Choosing the Right Attorney

An enduring power of attorney can name multiple attorneys (e.g. up to four in Queensland, who must agree on all decisions). It’s essential to ensure that the SMSF’s governing documents permit this. While appointing one or two attorneys may be practical, members must consider their overall estate planning intentions. Court cases like Katz v Grossman and Ioppolo & Hesford v Conti highlight the importance of clearly defining the scope of the attorney’s powers.

To avoid unintended outcomes, members should:

  • Ensure control passes to all intended beneficiaries.
  • Put in place a binding death nomination to direct benefits to intended beneficiaries, ensuring the attorney cannot alter this nomination.

There can be tax or estate planning advantages to having a binding death nomination. In some cases, it may be beneficial for the attorney to have the power to make a binding death nomination in favour of themselves or the member’s estate.

What If There Is No Enduring Power of Attorney?

If a member loses capacity without an enduring power of attorney, family members can apply to the State Guardianship Tribunal to appoint a legal personal representative. This process can be time-consuming, costly, and may not be completed within six months, with uncertain outcomes regarding the representative’s identity.

Estate planning involving an SMSF requires careful consideration and proper advice to tailor a suitable solution.