SMSF members would be wise to appoint a fund member guardian in addition to an enduring power of attorney (EPA) to safeguard their fund should they lose mental capacity.
During a webinar hosted today by Smarter SMSF, Hill Legal managing director Chris Hill said an EPA is a very blunt instrument as it appoints somebody without any powers or restrictions, and subject to the deed they can simply enter the fund and do as they please, including making decisions on investment strategy and limited recourse borrowing arrangements.
“We think the fund guardian is a great way to curtail the risks and the problem with just the EPA,” Hill said.
The fund member guardian is appointed by the SMSF trustee under the provisions of the SMSF deed for the purposes of managing their super interests in the fund. The guardian’s role and their powers are specified in the deed of appointment of the fund guardian.
“So typically the guardian’s role here is more of a veto power role: that his or her role as guardian is designed to veto or restrict investment decisions, or the admission of members or the rollover of benefits, the alteration of pension payments, the payment of death benefits, and … the management of excess transfer balances on death,” Hill said.
“And we can prescribe what roles or functions the fund guardian has or does not have and this is a discussion usually between the adviser and the client.”
He said the trustee’s financial adviser can assume this role if they wish to shift from an administrative position to more of an advisory role.
“For those advisers who want to add more value to the relationship, who have got deep trusted long-term relationships with their clients, those advisers will probably gravitate towards this process because it’s adding value to their client and it’s helping them be involved in this process,” he said.
He added this mechanism can be particularly useful for blended families where there are conflicts between family members, which could result in a burgeoning litigation market in relation to super death benefits.
“This is designed to help mitigate litigation, which is I think a lot more positive,” he said.
“People who are in conflict, clients with disabled children or spendthrift children who are not responsible as the only person who could be an EPA, a fund guardian is very useful there.”