Mostly, the people who belong to an SMSF are also in charge (the trustees). But sometimes another person steps in as trustee or director of the corporate trustee for a variety of good reasons. There are a number of special issues to consider.Join our newsletter
Anyone who holds a power of attorney can do a range of things for the person who granted it (the donor). An enduring power of attorney (as opposed to one that’s not “enduring”) is simply a power of attorney that continues to operate even if the donor loses capacity to make their own decisions.
There is nothing specific in the legislation that governs powers of attorney that relate to SMSFs. But superannuation law attaches them to a special concession from the usual rule that anyone who is a member of an SMSF must also be one of its trustees. Specifically, the attorney can be the trustee (or director of a corporate trustee) in place of the donor. This is only if the power of attorney is of the “enduring” kind.
There are no restrictions on when this can happen. Someone who simply doesn’t want to be the trustee of their own SMSF could ask someone else to do it for them and grant an enduring power of attorney. But most commonly, it’s a strategy that’s used when:
- The donor is moving overseas and needs someone else to take over to make sure the fund stays classified as an Australian super fund, or
- The donor loses capacity and needs someone to manage all their financial affairs, including their SMSF.
It sounds like a perfect solution – keep the SMSF but put it in someone else’s hands to manage. And by and large it is a great solution but as always, there are traps to watch out for.
Firstly, the attorney can only be the trustee in place of the donor (who remains a member). They can’t both be trustees together (unless it’s a single member fund and they are the only two trustees). So from the donor’s perspective, they really are giving up some important control and decision making power. And just revoking the power of attorney won’t change anything at all. The attorney actually gets appointed to be the trustee (or director), they don’t just “fill in when the member doesn’t want to”. If the member no longer wants their attorney to be the trustee, the fund would need to go through some specific steps to remove the attorney and put the donor back in place. That’s obviously much more easily done when everyone is still taking to each other!
The attorney needs to be aware that they are taking on the full responsibilities that normally go with being an SMSF trustee when they do this job. If the fund breaks the rules badly enough it will be the attorney who goes to jail not the donor.
The attorney can’t be paid to be the trustee. They can’t even be paid to provide services to the fund unless there are specific rules met (for example, the services must be those the attorney would normally provide to the public). This is why it’s almost always a family member that fills this role. No-one else would be crazy enough to take on a lot of liability and possibly a lot of work for no reward.
The “attorney” might even be multiple people. For example, if the donor has given three different people a power of attorney then all, one or just two can be the trustee of the SMSF in place of the donor. It doesn’t matter whether the power of attorney document itself requires these people to act jointly (ie they have to all make decisions together) or severally (they all have the power to make decisions individually). Once some or all of them become trustees or directors of the SMSF, they are all acting individually as trustees of an SMSF. Of course, like any trustee, they still have the significant responsibility of acting in the best interests of all of the members of the fund.
Like everything else with SMSFs there is paperwork involved but perhaps less than you might think. Really what is happening here is that one trustee (or director) is resigning and another (one or more attorneys) get appointed. In that sense it’s as simple as any other appointment – for example a new member joining the fund.
All of this makes it sound like a tricky thing to do. But actually it’s very sensible and most SMSF specialists recommend anyone with an SMSF also has an enduring power of attorney. It’s a reality these days that many of us with SMSFs will lose capacity before we die. If we still have our SMSF at that point, it’s much better to be sure that someone else can step in and look after it for us rather than leave the fund in limbo.
This article just skims the surface on a vitally important issue when it comes to preparing for incapacity in an SMSF. There are so many other things to think about and we’ve devoted a whole session to it in our forthcoming Super Intensive Day for SMSF professionals. Make sure you’ve saved the date or encouraged your accountant / adviser to do so.