A superannuation lawyer has highlighted the fact a standard power of attorney by itself is not a solution for an SMSF when a trustee suffers from mental incapacity.
“A lot of people will say to you, and they won’t even blink when they suggest it, is [we’ve managed trustee incapacity because] we’ve got a power of attorney [in place]. The critical thing in a financial planning context is that a power of attorney itself is completely useless,” View Legal director Matthew Burgess told attendees at SMSF Professionals Day 2023, co-hosted by selfmanagedsuper and Accurium, in Brisbane last week.
“What a power of attorney does is fine when it is made, but it ends instantaneously in the event of incapacity.”
Burgess advised practitioners only an enduring power of attorney will allow a nominated individual to act on behalf of an SMSF trustee when they are experiencing mental incapacity.
“An incapacity event will generally trigger the ability to exercise an enduring power of attorney,” he said.
While he acknowledged having an enduring power of attorney in place will offer a solution for trustee incapacity, he warned it was not an appropriate tool to address all estate planning situations.
“An enduring power of attorney ends instantaneously upon an SMSF member’s death. We’ve probably had a dozen war stories over the last little while where people have been running around post a member’s death with an enduring power of attorney purporting to exercise the distribution of assets, the withdrawal of funds out of the SMSF or whatever it might be,” he revealed.
He suggested these situations mean advisers and their SMSF clients need to go beyond a comprehensive knowledge of the fund’s trust deed to put a proper estate planning strategy in place.
“It is an area where we encourage you to not just read the deed but actually go back to the legislation as well because the legislation is very, very particular about how these things work,” he said.
Matthew Burgess will be covering this topic in greater detail at SMSF Professionals Day 2023 in Melbourne on 1 June and Sydney on 8 June. To register for the event, please visit https://web.cvent.com/event/e52ab0af-a2d3-46ef-bd98-4c91b6509c7a/summary?RefId=Summary.
