Given that an important element of an SMSF is that it is indeed 'self managed', the law requires1 that all members of an SMSF must be either the SMSF's trustees, or directors of the SMSF's corporate trustee. However, an exception2 allows for a member's legal personal representative — who holds an enduring power of attorney in respect of the member — to be a trustee of the SMSF in place of the member.
One example of a situation in which this arrangement is implemented is when an SMSF member:
Aside from this situation, it is difficult to think of another circumstance where this arrangement would be used, as a SMSF member should always manage, and be in control of, their own superannuation.
The ATO's Draft Ruling discusses the conditions that need to be satisfied for an SMSF to remain compliant by allowing a legal personal representative to replace a member as trustee (or director of the trustee). These conditions are:
The Draft Ruling states that a person who holds an enduring power of attorney for a member is classified as a member's legal personal representative3.
The power of attorney will need to be an enduring power of attorney (as opposed to a general power of attorney) meaning the authority and powers continue even if the member becomes legally incapable or dies. This is an important point — a general power of attorney will not be sufficient. SMSF members thinking of using an enduring power of attorney should have a lawyer draft them — particularly given the formal requirements set out in State and Territory legislation.
The document that creates the enduring power of attorney must include powers that allow a person to act in relation to the member's:
An enduring power of attorney that does not confer either of the above powers will not be appropriate for the purposes of section 17A(3)(b)(ii) of the SIS Act.
After the member has signed the enduring power of attorney, the member's representative needs to be properly appointed as:
At the same time, the member appointing the attorney must resign from their appointment as trustee (or director).
When the representative is appointed, they:
If a member appoints several attorneys, then only one can be appointed as SMSF trustee (or director) in place of the member.
The person who becomes trustee (or director) will have an extensive role in how the SMSF is controlled and managed. Therefore, the member should give the power only to a trusted and capable individual.
An enduring power of attorney can be very extensive in nature and can allow an individual to have full control over all of an SMSF member's financial and superannuation affairs. This control may be necessary while the member is residing outside Australia. However, when the member returns to Australia, they should be able to regain control of their SMSF. Properly drafted appointment documents should provide for this.
SMSF members and their advisors should always seek legal advice about arranging enduring powers of attorney and appointment documents and should ensure that a lawyer drafts the documents in accordance with the needs of the SMSF member.
The Draft Ruling comes into effect on the date it is finalised. In the meantime, it is prudent to take the Ruling into account.
For questions or more information about the above article, please call Maddocks in Melbourne (03) 9288 0555 and ask for a member of the Maddocks Superannuation Team.
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Andrew is a lawyer in the Maddocks Tax & Revenue team.
Andrew provides advice on:
His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Andrew was a tax consultant at a Big 4 Chartered Accounting Firm.
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