SMSF trustees concerned about overreach by someone acting under a power of attorney can limit their powers by hardwiring specific provisions into the governing rules of the fund and ensuring they are defensible against any legal challenge, according to a legal expert.
Inherit Australia director and head of legal Chris Hill said many SMSF trustees were familiar with the concept of using an enduring power of attorney (EPOA), but were less aware of what an attorney could do when acting for a trustee who has lost capacity.
“When an SMSF trustee loses capacity, they are required to resign from that role and can be replaced by an EPOA, but this can lead to abuse or a change in benefits to the EPOA,” Hill told selfmanagedsuper.
“This can occur because once the attorney becomes a trustee of the fund, any restrictions in the EPOA do not apply and they cannot be fettered in their execution of their duties as a trustee.”
He said rather than using an EPOA, SMSF trustees could appoint a special power of attorney (SPOA) with limited powers hardwired into the governing rules of the fund that would also allow trusted professionals to have some input into the handling of the incapacitated trustee’s SMSF assets.
“The SPOA can allow for prohibited, consent and veto powers, which can prohibit specific actions, require consent from a trusted professional or can be vetoed altogether by that professional,” he said.
“The SPOA means trustees can create a custom power of attorney that gives specific direction for things such as aged care and can prescribe how fund assets will be used in a range of circumstances.”
He said his work with SPOAs has been designed to prevent elder abuse, but they could also help avoid conflict between parents and children and within blended families, and could be terminated at a specific time.
“If an attorney is acting as trustee at the time of the death of a member, they can remain in that role and be hard to remove, and the same applies if a trustee regains capacity and wants to step back into their fund. An SPOA can make the office of trustee cease at a specific time, circumstance or on the death of the incapacitated member.”
The implementation of an SPOA requires a mechanism to allow a special minute to make changes to the governing rules of a fund and that process had to be allowed under the deed, he said.
“The benefit of this is the SPOA and its limits are hardwired into the fund and don’t require any changes to the deed if they need to be altered,” he said.
“It also means they are dependable as we have seen the courts look at the ‘black letter’ statements contained in SMSF deeds.
“The recent Hill v Zuda case demonstrated that if something is in the deed it is very hard to challenge and adding the SPOA to operating rules takes away risk and the possibility of the court exercising its discretion.”
