Necessary safeguard for SMSFs and Trusts: Why you should have an Enduring Power of Attorney in place

It is important for members of a self-managed superannuation fund (SMSF) to ensure that they have an up-to-date Enduring Power of Attorney (EPOA) in place to safeguard against circumstances where they become incapacitated or, can otherwise not exercise their relevant powers in respect of the SMSF themselves.

As SMSF members are required to be the trustee of the SMSF (or a director of a corporate trustee of the SMSF) under Australian superannuation law, an EPOA can ensure that the SMSF will continue to be compliant in such circumstances as the trustee attorney can, almost seamlessly, step into the shoes of the incapacitated member as trustee or director of the corporate trustee, as the case may be. Furthermore, an EPOA will ensure that if a member becomes incapacitated the SMSF will not become dysfunctional and that an application will not need to be made to a court or tribunal to appoint a power of attorney in the absence of an EPOA.

For individuals who are trustees of discretionary trusts, it is useful to have an EPOA for similar reasons however, it will also be important to consider the terms of the trust deed or company constitution before you appoint an attorney under an EPOA.

This article will discuss the dangers of not having an EPOA in place for members of an SMSF and consideration for trustees of family trusts to take into account when implementing an EPOA. It will also provide an overview of the Cleardocs range of EPOA products for Victoria, New South Wales, Queensland and Western Australia.

What is an EPOA?

An EPOA is a legal arrangement where a person appoints someone else to make legal and/or financial decisions for them. A power of attorney that is 'enduring' will continue where the person becomes incapacitated for any reason, whereas a general power of attorney will cease upon the incapacitation.

A person who is arranging an EPOA should appoint someone they trust to act as their EPOA, which could include a spouse or partner, child, sibling, other family member, trusted friend or a lawyer or accountant. It is common for a person to appoint the same person as their EPOA as the executor of their will.

Why is it important to have an EPOA as a member of an SMSF?

It is important for you to have an up-to-date EPOA as a member of an SMSF for the following reasons:

• SMSF may not comply with SMSF laws - To be compliant with Australian superannuation law, all members of an SMSF are required to also be the trustee of the SMSF (or a director of the corporate trustee). However, an SMSF is no longer compliant if a trustee (or a director of a corporate trustee) becomes incapacitated,[1] and superannuation law allows a 6 month grace period for this to be rectified.[2] Thankfully, superannuation law expressly provides that an SMSF does not fail to satisfy the conditions to be a compliant SMSF if a member has an EPOA and that the EPOA is duly appointed as a trustee or director of a corporate trustee as the case may be (under the terms of the relevant SMSF trust deed or constitution of the corporate trustee).[3]
• Trust may not be workable - Depending on the terms of an SMSF deed, the incapacitation of a trustee (or director of a corporate trustee) may cause the SMSF to become dysfunctional. For example, if powers under the SMSF trust deed are unable to be exercised, the SMSF may be in limbo for a prolonged period and necessary actions may unable to be taken (e.g. distributions may not be able to be made to members).
• You may need to go to court - The incapacitation of a trustee (or director of a corporate trustee) without an EPOA may require a person to go to a Court or a state tribunal in the relevant jurisdiction to apply to be the attorney who can act as trustee or director of the corporate trustee (for example, in Victoria the Guardianship List of the Victorian Civil and Administrative Tribunal). This is a time consuming and expensive process, and also allows the proposed appointment to be contested by others, leading to a dispute about who will be the appointed attorney under the SMSF. Furthermore, this process will likely take longer than the 6-month grace period granted to rectify the SMSF under the SIS Act, so the SMSF will likely become non-compliant with superannuation law.
• Time, stress and expense - It goes without saying that the above options may cause significant stress and will be costly, and will take a long time to put into place, which can substantially be avoided if an EPOA is in place.

Is an EPOA useful for trustees of discretionary trusts?

For trustees of discretionary trusts who are trustees in their individual capacity, it is a good idea to have an up-to-date EPOA for similar reasons as highlighted above (without the SMSF-specific compliance issues).

For directors of a corporate trustee of a discretionary trust, it will not generally be possible to appoint someone else to act as director under an EPOA. This is because director duties are personal and cannot be transferred to another person under an EPOA.

However, there is one specific context in which an EPOA is very useful for company directors to have in place - which is where a company only has one director. This is because, if a sole director of a corporate trustee of a discretionary trust becomes incapacitated, section 201F of the Corporations Act 2001 (Cth) provides that a personal representative (such as an attorney appointed under an EPOA) has the power to appoint a person as the new director to replace them.

What are the Cleardocs products available?

Cleardocs offer the following relevant products:

• Victoria - Enduring Power of Attorney (Personal and/or Financial) VIC
• New South Wales - Power of Attorney (Financial) NSW
• Queensland - Enduring Power Of Attorney (Personal Or Financial) Queensland
• Western Australia - Enduring Power Of Attorney (Financial) (Western Australia)

Please read the Product Benefits, Product Information and Frequently Asked Legal Questions carefully and consider if it is appropriate in your circumstances before purchasing any Cleardocs product.

For a discussion on practical matters on what is to be required, and for a discussion on circumstances where an appointed attorney is already a member/trustee of the SMSF, please refer to our previous ClearLaw Article Incapacity of SMSF members - The benefits of an enduring Power of Attorney.

More information from Maddocks

For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of the Commercial team.

More Cleardocs information on related topics

• Incapacity of SMSF members - The benefits of an enduring Power of Attorney
• An enduring power of attorney can help your SMSF stay compliant
• SMSF Trustees: Why should I use a corporate trustee?
• Evidencing Arm's-Length Private Lending - SMSF Defends Against ATO NALI determination

[1] Section 17A(1) of the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act).

[2] Section 17A(4)(b) of the SIS Act.

[3] Section 17A(3)(b)(ii) of the SIS Act.