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In this edition of It Depends, partner Scott Hay-Bartlem explains what happens when a member of an SMSF loses capacity. Understanding the trustee-member rules and the role of enduring powers of attorney is crucial to keeping your SMSF compliant and operating smoothly. Watch to learn how to manage trustee and director changes in these situations and why effective planning is essential.
Video transcript
Welcome to this It Depends, where I'm going to talk about what happens when a member of an SMSF loses capacity.
Why is this important?
Under the trustee member rules for SMSFs, all members must be trustees or directors, and all trustees or directors must be members. There's some special rules for one member funds. That means that your members are also going to be your directors or the trustees of the SMSF.
So, if a member loses capacity, there'll be a director or trustee also losing capacity. And if you've lost capacity, you really can't be the trustee or director of the corporate trustee of an SMSF.
What needs to happen?
So, the basic trustee member rules for SMSFs have members and trustees and directors being the same. There is an exception though, that you can have an attorney under an enduring power of attorney for a member being the trustee or director instead.
So, what that means is for your SMSF to continue to be an "SMSF", when someone's lost capacity, is the member's attorney under an ordinary, enduring power of attorney, has to become the trustee or member in their place.
What do I need to do?
So, if a member trustee loses capacity, they need to come off as a trustee, based on the trustee rules, and then their attorney needs to be appointed as a trustee instead.
If a member director loses capacity, the director needs to come off as a director company constitution and then the attorney for that member goes into their place.
So, if I've lost capacity and Linda is my attorney, I will stop being a trustee or director of my SMSF, and Linda will be appointed instead.
Now, there's lots to consider around incapacity. These are the special rules for SMSFs, and we need to make sure we've got this planned for and getting it right.
If you'd like to talk about any other incapacity issues generally, or what to do with SMSFs, please contact a member of our team. Thanks for watching this It depends.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
