Trustees of an SMSF are advised to be cautious if there is a significant gap between when the appointment of enduring power of attorney (EPOA) is proposed and when it is accepted as it may not be valid during that period.
Speaking during a presentation for the recent Heffron Super Intensive Day 2021, Heffron director of SMSF technical and education services Leigh Mansell said an EPOA was not a set-and-forget measure and trustees had to ensure it was in place.
“Maybe somebody granted an EPOA to somebody and it might have been made ages ago, but the attorney hasn’t actually accepted that role yet. That is not unusual,” Mansell said.
“I saw one a couple months ago where there was about an 18-month difference between the date that the donor or principal made it and the acceptance date. So potentially, that particular case had a gap period of 18 months where they technically did not have an attorney.”
She noted that while this was a common issue, there were other events that could also result in the EPOA failing or becoming invalid.
“Everyone thinks they’ve got their bases covered, but for whatever reason [the client’s] EPOA is invalid or it is not enforced or something has gone wrong. It could be a myriad of things,” she said.
“Maybe the trigger event hasn’t happened. Activating [the trigger event] might take place when the trustee has to meet a definition, it might be a medical definition, but maybe at that point they have not met that precise definition,” she said, noting the EPOA would not be able to come into effect in that situation.
In addition, she advised trustees to consider implementing two EPOAs, in the event the lost capacity of an attorney could result in additional complications.
“Another thing that could invalidate the whole arrangement is the person who is the attorney has lost their capacity, maybe they’ve died and there’s no alternate attorney,” she said.
“When our client loses capacity, we’ve got that attorney [to] replace the incapacitated person as trustee or director.
“One of the things to be mindful of is that if we’ve got a joint arrangement, the invalidity or effectiveness of one of those joint attorneys won’t make the whole thing defective.”