When it comes to estate and succession planning there are several important things you need to consider.
The Will is important to enable assets to be distributed in accordance with your wishes when you die.
A Death Benefit Nomination to deal with your superannuation entitlement is also an important document as your Will doesn’t automatically cover your super unless you instruct it to do so. Further, what happens if you are incapacitated and not able to act either on a temporary or permanent basis?
Neither your Death Benefit Nomination nor your Will covers this. Therefore, it is prudent to incorporate an Enduring Power of Attorney into your estate and succession plan.
WHAT IS AN ENDURING POWER OF ATTORNEY (EPOA)?
An Enduring Power of Attorney is quite simply a legal agreement that enables you to appoint another person or people to make financial, personal/medical or property decisions on your behalf in the event you are unable to act. This appointment can be either on a temporary or permanent basis depending on the reason for the appointment.
Many people indicate that they have a Power of Attorney in place which is fine if you have mental capacity. If in any event you lose mental capacity the Power of Attorney ceases to operate. It’s therefore prudent you have an EPOA in place.
WHO CAN BE APPOINTED?
Broadly speaking, although anyone can be nominated as an EPOA and this role is not restricted to family members, you can build into your election that the EPOA needs to consult with family members when making the decisions.
Your EPOA should be a person you trust implicitly to act in your best interest. When finalising your decision on who to appoint, it is also essential to review your trust deed, as some deeds may set some underlying conditions on who can take up the appointment. You will also need to consider the state you reside in as the specifications will change in relation to each state.
You can choose to nominate more than one EPOA who can act jointly in making the decisions and it is also a good idea to appoint a substitute should one of your EPOA’s not be able to, or do not wish to take on the responsibility of being a trustee.
WHY IS AN EPOA IMPORTANT?
All members of an SMSF must be trustees, but to be a trustee of an SMSF you can’t be under any legal disability including mental incapacity. If you become unable to act or lose capacity, you must be removed, and someone will need to be appointed either temporarily or permanently in your place until you can act again on your own.
Your EPOA will take on all responsibilities of being a trustee. They will make financial decisions on your behalf. This will include the acquisition and disposal of investments, transacting on the funds bank account including paying all expenses of the fund including pensions. They will also be responsible for the signing of financial statements, taxation returns, and other mandatory compliance minutes required. In other words, they will oversee the day to day running of the SMSF in much the same way you did.
As blended families are becoming more prevalent having an EPOA can avoid any unnecessary friction or certain actions being taken that you did not anticipate would ever occur.
WHEN SHOULD I PUT AN EPOA IN PLACE?
As we cannot foresee our future, all SMSF trustees should automatically have an EPOA in place for their SMSF operations as once a trustee loses capacity to act an EPOA cannot be executed. In simple terms, be prepared for the unexpected.
WHEN IS AN EPOA APPOINTED?
An EPOA can be appointed at a time nominated by the trustee. It is possible to specify the conditions surrounding the appointment such as two doctors are required to sign off that the trustee is no longer able to act or even nominating the EPOA be appointed from a certain date.
EPOAs can also be useful when trustees move overseas and need to meet the ‘central management and control’ test.
WHAT HAPPENS IF I DON’T HAVE AN EPOA NOMINATED?
If something happens to you and you don’t have an EPOA (depending on which state you reside), there can be dire consequences for the fund.
For example, if you reside in NSW an application would need to be made by your next of kin to the NSW Civil and Administrative Tribunal to obtain an order to enable your SMSF assets to be dealt with.
The superannuation legislation allows up to six months for the fund to operate without a trustee or with only one trustee but after this time, if the situation is not rectified, an audit contravention may be reported to the ATO. Not only can this exercise after the fact be expensive from a request point of view but quite often it will take longer than 6 months for the court order to be handed down.
If an audit contravention is lodged then this also puts the fund assets at risk and severe penalties can be levied. If you would like to discuss whether your EPOA will take into account your SMSF operations or if you would like us to arrange one be prepared on your behalf please contact our office on
1800 064 959.
This information is provided by ExpertSuper™ Pty Ltd ACN 628 032 888 (Authorised Representative No. 1274492). The information is general information only and does not take into account your objectives, financial situation or needs. You should obtain professional advice before acting on any of this information. Please refer to ExpertSuper’s FSG (available at https://www.expert-super.com.au/wp-content/uploads/2020/02/ES-Financial-Services-Guide.pdf) for contact information and information about any remuneration and associations with product issuers.