Administration, financial advice, SMSF

Incapacity too big to ignore

SMSF Incapacity Trust deed

The growing cohort of older SMSF trustees and members means advisers and auditors should be preparing to deal with more issues related to incapacity.

The high level of older people operating SMSFs and the sums of money they oversee means financial advisers and auditors need to be aware of incapacity issues and make them part of client discussions, a technical specialist has noted.

The Auditors Institute ambassador Graeme Colley said a review of ATO statistics showed close to one in two SMSF members was aged over 65, which accounted for the growing need to consider capacity issues in regards to the running of a fund.

Citing figures from the ATO September 2023 quarterly SMSF report, Colley said: “It is estimated there is more than 611,000 SMSFs, the average fund balance is around about $1.39 million, we’ve got over a million SMSF members and the average member balance is about $745,000.

“That gives you an idea of the population we are looking at and based on the ATO’s Australian business register data, males represented 43.7 per cent and females represented 40.9 per cent of all SMSF members that were 65 and older.

“So, the total members of SMSFs that were 65 or older is about 42 per cent of all members so think about that when you’re looking at … why is incapacity starting to become much more of an issue,” Colley said during a recent webinar hosted by the institute.

He pointed out conversations around capacity are likely to be more frequent and practitioners should be looking at processes to deal with that occurrence.

“When you talk to some clients, they may start saying they are not so sure about their husband or my wife who are finding it hard to comprehend things, and they are trying to understand some of the more complex concepts in SMSFs and particularly some of the changes that go on,” he said.

“If you’ve got somebody that’s incapacitated or losing capacity, then we need to make sure there’s an ‘insurance policy’ there if something goes wrong.

“In that case, the trust deed, the rules of the fund, enduring powers of attorney and legal personal representatives have to be sorted out prior to the clients or the members of that SMSF experiencing some sort of incapacity in relation to the particular fund.”

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