SMSF advisers should be aware of claims that a trustee has lost capacity and require anyone wishing to act for them to provide reasonable proof, an SMSF technical manager has advised.
Heffron SMSF technical and education services director Leigh Mansell said the issue of incapacity may be raised by someone who holds a power of attorney for an SMSF trustee but they are required to prove a loss of capacity when doing so.
“If a client’s attorney says someone has lost capacity, tread warily as the onus of proof rests with the attorney,” Mansell said during a presentation at the Heffron SMSF Intensive Day 2021 held today.
She noted everyone is presumed under law to have capacity until it is proven otherwise and only courts were authorised to make that decision.
“What the court considers when looking at whether someone has the capacity to make a decision or give informed consent is if there is documented evidence that an individual is able to do certain things, such as remember and absorb information given to them and in their mind process the information, or advice, in relation to a particular decision,” she said.
“Can they also reason and rationalise the potential effect to them of the decision and to their family or beneficiaries as well.
“Some of the things that have come out of court cases is that expressing an opinion, exercising a choice or choosing between a few things or signing something is different to making a legally binding decision.”
She noted for advisers this was unlikely to be a problem for clients where there were no contentious issues, but for those clients at the other end of the spectrum the burden of proof rested with the person making a claim about incapacity.
“What we are hearing in regard to this is that some financial institutions now want more meat on the bones around a claim that someone has lost capacity,” she said.
“They want to see some medical evidence of the loss of capacity and some evidence that at the time the person granted the power of attorney they had capacity to do so.
“Presumably you could get that from the lawyer who drafted the power of attorney and witnessed and explained the issues at the time, but it appears this is becoming a big deal across financial services.”
