SMSF control
What happens to my SMSF if I lose capacity?
In an SMSF, every member must also be a trustee, or a director of the trustee company. If dementia, a stroke or an accident means you can no longer make decisions, someone has to take your place — and the law only allows certain people to do that.
At a glance
You must be a trustee
An SMSF only stays an SMSF while each member is a trustee or director. Losing capacity puts that at risk.
Your attorney can step in
A person holding your enduring power of attorney can take your place as trustee or director, and the fund remains an SMSF.
Without one, the clock runs
If no one can take your place, the fund generally has 6 months before it stops being an SMSF.
Why it matters
- Someone has to sign. Investment decisions, bank transactions, the annual return and the audit all need a trustee to act.
- Pensions must keep being paid. If you are drawing a pension from the fund, the minimum payments still have to be made each year.
- The other member may end up in control. In a two-member fund, your partner may effectively control your balance as well as their own. In a blended family that can matter a great deal.
- Your nominations may lapse. If you have a binding nomination that needs renewing, whether anyone can renew it for you depends on your fund's deed and your power of attorney.
How an enduring power of attorney works for your SMSF
The SMSF rules let your legal personal representative take your place as trustee, or as director of the trustee company, while you are under a legal disability or while they hold your enduring power of attorney. A legal personal representative includes a person holding your enduring power of attorney.
What the attorney does
- Is appointed trustee, or director of the trustee company, in your place.
- Acts as a trustee in their own right, with all of a trustee's duties.
- Must not be a disqualified person (for example, an undischarged bankrupt).
Getting the document right in Victoria
- The power must be an enduring power covering financial matters. A general power of attorney ends when you lose capacity.
- It must be witnessed by two eligible adults, one of whom is authorised to witness affidavits or is a medical practitioner.
- Medical decisions are separate. They are covered by appointing a medical treatment decision maker.
If you don't have an enduring power of attorney
No one can automatically step into your role. Your family would generally need to apply to VCAT for an administrator to be appointed. Until someone can take your place, the fund may be unable to act, and if it no longer meets the SMSF rules it generally has 6 months before it stops being an SMSF. After that, a professional trustee would need to be appointed or the fund wound up.
Common traps
- An enduring power that covers personal matters only, not financial matters.
- An attorney who couldn't legally be a trustee, such as a person who is bankrupt.
- A fund deed that doesn't clearly allow your attorney to replace you, or a trustee company constitution that makes it hard to appoint a new director.
- An attorney who is also a beneficiary of your death benefit, with no one checking their decisions. A leading member or protector arrangement can add that check.
- Assuming your Will deals with any of this. It doesn't — your Will only operates after you die.
Quick checklist
- Do you have an enduring power of attorney covering financial matters, and who is your attorney?
- Could that person legally act as a trustee or director?
- Does your fund's deed and trustee company constitution allow them to step in smoothly?
- Is your fund's trustee a company or individuals?
- Are your death benefit nominations current, and what happens if they need renewing while you can't act?
- Have you appointed a medical treatment decision maker?
The free Family Wealth Stress Test covers each of these in about 10 minutes.