If an SMSF member ceases to be a trustee or director of a trustee by reason of incapacity, the SMSF may no longer be a complying fund. The SIS Act provides for continued compliance in circumstances where the member's legal personal representative holds a valid enduring power of attorney granted by that member and is appointed in their place. Cassandra Townsend, Thomson Reuters

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The SIS Act sets out conditions a fund must satisfy to be an SMSF. A member who has an enduring power of attorney in place ensures:

• the fund can continue to satisfy the definition of an SMSF if they lose capacity; and
• they can choose their most appropriate replacement as trustee or a director of the trustee.

There are some points to note about the power of attorney:

• it must be in force before the member loses capacity;
• it must be current; and
• it must accord with relevant state or territory legislation.

The replacement process is not automatic. The incapacitated member must be removed as trustee and the legal personal representative appointed as trustee or director of the trustee, all in accordance with the relevant legislation and the governing rules of the entity (SMSF trust deed or company constitution).

The legislation provides for a 6 month period to get the fund in order. This means the replacement must be appointed within 6 months of the incapacity, unless the member regains capacity within that period and can resume their duties.

More information from the ATO

For more information, read Self Managed Superannuation Funds Ruling 2010/2.

More Cleardocs information on related topics

You can read earlier ClearLaw articles on a range of SMSF and estate planning topics.

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