SMSF trustees looking to address issues of capacity should not overlook the establishment documents of their fund and must ensure they also have mechanisms to allow someone to step in and act on their behalf, an SMSF specialist has suggested.
RSM Australia partner for SMSF services Katie Timms noted the key documents to consider in dealing with incapacity was the deed and the fund constitution as they both may contain clauses which dictated what actions were able to be taken.
“Take a look at what does the deed say, and if there was ever an argument for not having multiple deed providers, this will be it,” Timms told delegates at Class Ignite 2025 held in Sydney recently.
“What does it say about capacity? What is the process that you need to follow? Is it an automatic clause that as soon as the person is declared to not have capacity, bang, it’s done?” she asked.
“What does the fund’s [corporate trustee] constitution say as well?
“I don’t how many people read their constitutions as they are usually just the shelf document you have to get to prove you are a trust company, but there’s actually a lot of valuable stuff in there as well.
According to Timms a review of the constitution may reveal problematic clauses such as ones that exclude a person from being a company director should they be declared incapacitated.
“In that case, are there other options and have you considered a successor director?” she proposed.
“They are not widely used, and I will put my hand up and say that includes me, but it is something I am starting to consider more because a successor director is an option instead of appointing someone to act on your behalf as an enduring power of attorney.
“Usually they are the same person but you can also nominate them as a successor director so if you lose capacity they become a replacement director [under the terms of the constitution] and that is seamless, simple, and something that we should probably be considering.”
