Who will manage my super fund when I can't?
THE two most common questions I am asked by my Self Managed Superannuation Fund (SMSF) clients, is who can manage their SMSF when they are no longer able to, and what they can do to make sure their superannuation goes to the right people when they die.
Normally, these clients are members of a single member SMSF or a husband and wife in a two-member SMSF. This means they are the main decision makers for their SMSF.
Under the superannuation law an SMSF is a private superannuation fund where all members are individual trustees or directors of the corporate trustee. This means, if a member is unable to manage their SMSF, they can no longer act as a trustee or director of a corporate trustee - the SMSF will not comply with the legal structure under the law. Although the law allows six months for an SMSF to restructure, someone still needs to make decisions during this period.
So, what options are there for an SMSF member if they can no longer manage their fund because of mental incapacity or death?
One option is an Enduring Power of Attorney (EPoA). An EPoA is a legal document that allows a member to give a trusted person authority to make decisions for their SMSF. In the event a member is unable to act as a trustee or a director, their attorney can act in their place. The attorney assumes the duties, responsibilities and obligations of an SMSF trustee in their personal capacity. This means, the attorney will be subject to civil and criminal penalties for any contravention of the superannuation law.
However, if there is no EPoA in place prior to a member losing their mental capacity, then the only option is for someone to approach the Civil and Administrative Tribunal for either an administrator or a financial manager to be appointed. This may be time consuming and stressful for loved ones to have to go through this process.
SMSF members should also consider putting in place a binding death benefit nomination (BDBN). A BDBN is a legal document that requires the remaining SMSF trustee to pay the deceased member's superannuation to the person nominated by the deceased. Without a BDBN, a member cannot be certain that their super will go to people they intend.
The government proposal to increase the maximum number of SMSF members from four to six may assist with some of these issues. It means, there will be other members in the SMSF who can hold an EPoA for an incapacitated member.
However, with more people making decisions for an SMSF, it may create greater risk. There is also the potential for children to use their numbers to outvote their parents if a dispute arises.
Members may also be in different stages of their lives so may not agree on mutually beneficial investment strategies. SMSFs with larger numbers of members will need to have a trust deed with solid dispute resolution mechanism to resolve conflict amongst members.
If SMSF members no longer wish to manage their fund, they could consider converting their SMSF to a Small Australian Prudential Regulation Fund (SAF) where a professional licensed trustee is responsible for managing the fund.
There is also the option for members to roll their super into a retail or industry super fund prior to winding up their SMSF.
If you have an SMSF, planning for your incapacity or death should be something that you resolve very early on in the life of your SMSF. Failure to do so could leave your family with a legacy you never intended.
For more SMSF information from Monica Rule, go to www.monicarule.com.au