SMSF, Strategy

Exit strategy must include incapacity

Exit strategy incapacity

The inclusion of a plan to manage trustee incapacity as part of an SMSF exit strategy is arguably more important than addressing a member’s death.

A superannuation lawyer has identified having an SMSF exit strategy to manage the incapacity of trustees is often overlooked, but is often more important than planning for when a member dies.

“Often people will have thought about what an exit might look like in terms of a death event, but then they won’t necessarily have created a parallel solution in relation to an incapacity event and in some respects you’d actually say that incapacity is possibly an even more important situation to get right,” View Legal director Matthew Burgess told selfmanagedsuper.

Burgess pointed out death has a definitive timeline for the deceased member and often the SMSF, whereas situations involving incapacity can play out for many years.

“With an incapacity event you could have a situation where the member is alive for many, many years, but is still part of the SMSF and if their wishes have not been crafted from the very get go in terms of exactly what they want to have done during that period, then there are all manner of problems that can arise,” he noted.

According to Burgess, any exit strategy should be reviewed at least on a yearly basis.

“That doesn’t mean that we’re necessarily looking to go and change things every 12 months; it’s more about building a procedure to ensure we are actually reviewing these plans on a regular basis,” he said.

He suggested one of the easiest methods to adopt a disciplined approach to regular reviews of exit strategies is to link the process to a “memory hook”. This means performing a revision of those plans in conjunction with another fund obligation, such as filing the SMSF annual return or undertaking the yearly audit.

“Ideally there should be a run through of what is going to happen in both an incapacity event and also a death event and then, almost on a checklist-style basis, overlaying any changes that might have happened from a member and legislative perspective,” Burgess said.

This issue will be covered in much greater detail at SMSF Professionals Day 2023. To register for the event, please visit

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