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Incapacity definition requires caution

incapacity; definition; documentation

A senior SMSF consultant has warned setting a definition for incapacity with regard to proper super fund documentation is not a simple task and advisers should be wary of the associated complexity.

The definition of what constitutes incapacity for an SMSF trustee is not straightforward and advisers need to be aware of the complexities involved with this subject when formulating the documentation of a super fund, a sector consultant has said.

“You may have a trustee who does not know the difference between a cheque for $100 and one for $10,000. Does that mean they’ve lost capacity?” Chartered Accountants Australia and New Zealand superannuation and retirement incomes principal consultant Tony Negline asked delegates at the accounting body’s recent SMSF Day 2019 in Sydney.

Negline referred to a New South Wales court case where the issue was considered as to how this type of determination is not straightforward.

“In that case an individual was maybe a little bit challenged, in terms of life, and needed help to get stuff done, like going down to the shops and basic tasks and so on and so forth, and life wasn’t easy,” he noted.

“But the court decided he had enough mental capacity to make a will.

“So just because a person is a little bit slow, not using that term in a disparaging sense, which may lead us to think that person can be ripped off easily [and so is incapacitated], the courts might not agree with you.”

He noted a recent search he performed on the NSW Law Society’s website regarding the definition of mental incapacity reinforced how complicated this issue can be for advisers to navigate in the context of putting prudent SMSF documentation in place.

“There is something like a 40-page PDF document helping lawyers determine whether or not a client has lost mental capacity. That’s horrendous,” he said.

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