Tuesday, July 7, 2015

Incapacity and SMSF control



Where a member of an SMSF dies, leaving (for example) their spouse as the sole member and a reversionary pensioner, issues can arise where that member themselves loses capacity.

In this scenario, much depends on the exact circumstances including the timing of the various death/incapacity events and whether the SMSF has an individual or corporate trustee.  Broadly, where corporate trustee is in place:

  1. Upon the death of the first member (leaving a reversionary pension for the other member), the remaining member would control the SMSF as sole director of the corporate trustee.  The executor for the deceased member would not have any ongoing involvement in the SMSF or corporate trustee.

  2. Upon the subsequent incapacity of the second member, their financial power of attorney would, subject to the exact provisions of both the SMSF deed and the constitution for the corporate trustee, have the ability to remove the incapacitated director and appoint themselves in their place. 

  3. While there must be an enduring power of attorney in place before the event of incapacity, there is no specific wording required in the document itself, rather the SMSF deed and the constitution will be critical.

  4. The attorney for the incapacitated member would then perform the administrative functions in their capacity as director of the corporate trustee.



Image credit: Sippanont Samchai cc