An Enduring Power of Attorney (EPoA) is a legal agreement that allows you to appoint someone you trust to make financial and/or property decisions on your behalf. This can be done by anyone over the age of 18 who has full legal capacity.
Every day, we make numerous decisions regarding our families, work, and lifestyles. Yet, there may come a time when we are unable to make these decisions ourselves due to mental or physical incapacity, resulting from illnesses like Alzheimer's or unforeseen accidents. Having a plan in place for such eventualities is essential, as it permits someone else to make legal decisions on our behalf.
Having legal documents prepared before losing capacity ensures that our decisions can be made by someone we trust. Without these documents, a government department might have to step in to manage our affairs, which most of us would prefer to avoid. To make a valid legal document, you need to understand why you're making it, the choices involved, and be able to communicate your decision.
The main reason for having legal documents that give someone the power to act for us is that they will know our wishes and act in our best interests. It's also a cost-effective way to protect our family, finances, and assets.
Why is an EPoA Important for SMSF Members?
For a self-managed superannuation fund (SMSF) to qualify as such, each member must be a trustee or a director of the fund’s corporate trustee. This requirement makes the EPoA a crucial document for SMSF members.
Consider the implications if an SMSF member becomes incapable of making decisions:
How does the SMSF operate?
How can documents be executed?
How does a corporate trustee function?
How can a new trustee be appointed?
How will assets be bought or sold?
How are pensions or lump sum withdrawals approved?
Without an EPoA, several issues can arise:
Documents requiring two signatures can't be executed.
Possible audit contraventions.
The ATO may render the fund non-complying.
You can't roll out an incapacitated member as SIS regulations require member consent.
You might need to apply to a Civil and Administrative Tribunal for guardianship, which can be a lengthy process.
Documents Requiring Two Signatures
Execution of Documents: For many legal and financial documents, two signatures are often required to ensure validity and compliance. If one of the signatories becomes incapacitated, the document cannot be executed without their signature unless an EPoA is in place.
Continuity of Operations: In the context of an SMSF, if a member who is a trustee or director becomes incapacitated, their legal personal representative (appointed through an EPoA) can step in to sign documents on their behalf. This ensures that the fund can continue to operate smoothly without interruptions.
Avoiding Non-Compliance: Without the necessary signatures, the SMSF could face compliance issues, such as audit contraventions or being rendered non-complying by the ATO. An EPoA helps prevent these issues by allowing the appointed attorney to sign on behalf of the incapacitated member.
Decision Making: Important decisions, such as buying or selling assets, approving pensions, or making lump sum withdrawals, often require the consent of all trustees or directors. An EPoA ensures that these decisions can still be made even if one member is incapacitated.
Legal Framework
Under the Superannuation Industry (Supervision) Act 1993 (SISA), an SMSF can continue to qualify as such if the legal personal representative (LPR) of a member is a trustee or a director of the corporate trustee during any period when the member is under a legal disability or has an EPoA.
The term "legal personal representative" includes the executor of a will, the administrator of an estate, the trustee of an estate of a person under a legal disability, or a person who holds an EPoA.
Implementing the EPoA with Your SMSF
To meet the requirements of the SISA and the Self Managed Superannuation Funds Ruling SMSFR 2010/2, the following conditions must be satisfied:
The LPR/EPoA must be appointed as a trustee of the SMSF or as a director of the corporate trustee.
A member who has lost capacity must cease to be a trustee or a director upon the appointment of their LPR.
Multiple attorneys can be appointed as trustees or directors in place of the member.
An existing member who is a trustee or director can also be appointed as an LPR.
Acting as a Trustee Under the EPoA
Once appointed, the attorney performs their duties as a trustee or director, not as an attorney or agent for the member. They must understand their duties, avoid conflicts of interest, comply with relevant legislation, and prove their appointment if necessary.
In Summary
Granting an EPoA is a significant decision but an essential one for all adult Australians, especially SMSF members. Without an EPoA, there can be delays or financial disasters if a member loses capacity. Having an EPoA ensures that the fund can continue to be a complying SMSF.
I hope this helps clarify the importance of an EPoA. Feel free to share your thoughts or ask any questions!We can offer you assistance and advice, and if you feel this may be important to you, you can contact us by clicking this link: Financial advice is provided by Wealth Effect Group.
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