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Self Managed Super Fund (SMSF) Article
Super fund trustees can also have enduring powers of attorney
By Tony Negline.
This article may be out of date.
23rd June 2010
Once major tenant of the laws governing Self Managed Super Funds is that each member of a fund must also be a trustee and there can be no other trustees.
If the fund trustee is a company then each member must be a director of that company and there can be no other directors of that corporation.
Special rules exist for Self Managed Funds with only one member.
There is also some flexibility for minors.
An LPR is someone who manages the legal affairs of an individual. These super laws also allow a legal personal representative (LPR) with an enduring power of attorney to act as trustee for a member. Many people have wondered when and how this rule it could be used.
Four examples spring to mind when this rule might be handy.
Firstly, suppose a self-managed fund trustee has reached an advanced age and no longer feels capable of making financial decisions. Typically the process begins with Mum and Dad seeking a second opinion and then progressively passing over all responsibility.
The second example involves satisfying the Australian Super Fund test. This test is especially important for super fund members who live overseas either temporarily or permanently.
The ASF test has three parts and all of them have to be passed otherwise severe tax penalties will apply. The ASF test is written in such a way that the Tax Office has to apply these penalties for even innocent breaches.
The third example involves the appointment of a LPR if a trustee has lost mental capacity through illness or injury.
Our fourth example deals with minors. Young children can be members of Self Managed Super Funds but will need someone to act on their behalf. The super laws provide that this can be either a child's parent or a court appointed guardian. So a legal personal representative is not used in these circumstances.
Recently the Tax Office finalised a Self Managed Super Fund Ruling about using LPRs via Enduring Powers of Attorney (EPoA). In the process of finalizing this ruling the Tax Office released some helpful information about EPoAs and how they can be practically used.
For example, the ATO were asked if it's possible for one person with an EPoA to be appointed a trustee for more than one member of a Self Managed Super Fund. The ATO said that this is allowed by the super laws. A super fund wishing to implement this would need to check their trust deed.
What happens with corporate trustees? This is a little more complicated and over time the ATO has changed it's view.
Some months ago the ATO said "the appointment of the legal personal representative as a director of the corporate trustee and the resignation of the member from this position must be in accordance with the constitution (if any) of the corporate trustee, the SISA and the relevant provisions of the Corporations Act." In effect this would mean alternate directors are not possible and the LPR must be appointed a director.
However the ATO now say alternate directors are allowed as long as their appointment is conducted in accordance with the corporate trustee’s constitution or the Corporations Act. If an LPR is appointed as an alternate director, they must be appointed "in their own right and not as the member’s agent". Also the LPR must be given the power to "to act as a director when the member is not performing those duties themselves. The member is not removed from the position of director in these circumstances."
This represents a very important change in view and potentially provides a greater degree of flexibility in using an EPoA with corporate trustees.
Initially the ATO said that an EPoA "must include an authority to act in relation to the donor’s financial, business and property affairs or an authority to act in relation to the donor’s superannuation affairs. Conversely, the authority cannot have an exception relating to superannuation or financial affairs."
These requirements have been removed from the final ruling and it would appear that they are no longer required.
What about the removal of a trustee or director when the member has lost mental capacity? "The way in which an [individual] trustee of a fund is replaced by the LPR in such unforseen circumstances is subject to the terms of the trust deed and relevant State or Territory trustee legislation." For corporate trustees in these situations we need to refer to the constitution of the corporate trustee and the Corporations Act.
The ATO reiterates that the EPoA cannot receive any remuneration for performing any duty in relation to a Self Managed Super Fund. This means that it is highly unlikely that a solicitor or accountant who provides professionals services to a SMSF would want to be appointed to an EPoA in relation to a fund member.
What about joint holders of an EPoA? It is possible to appoint more than one EPoA if they are required to act together – never separately or severally – in relation to their duties as an attorney. This means that a SMSF might have more legal personal representatives acting as trustees than it has members.Finally undischarged bankrupts or anyone who committed a crime of dishonesty at any stage in the past or anyone who the super regulators has banned from being a super fund trustee. People in these situations must restructure their SMSF or face potential sanctions.
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