01/08/2011

The provisions that allow Enduring Attorneys to act as trustee or director of the corporate trustee in place of the member is an important exception to the member-trustee requirement of self managed superannuation funds ("SMSF"). The member remains a member of the fund. This opens the door to numerous planning opportunities and allow members to enjoy the benefits of having their own SMSF without the onerous trustee duties and compliance responsibilites.

This exception comes about through intricate interaction of the State and Commonwealth Legislation on powers of attorney and superannuation. Understanding how they work together and the documentary requirements will enable enduring power of attorrney ("EPOA") to be used effectively for clients who may benefit from these provisons.

The Legislative Basis

1. EPOAs have to be made in the approved form in accordance with the law of the applicable State or Territory. Most of the States recognise the EPOA properly made in another State as legally valid.

2.  However, the power of the enduring attorney to act as trustee or director of the corporate trustee in place of the member of a SMSF is not derived from the state statutes that regulate the power of attorney.  In fact, most state legislation does not confer power on the attorney to act as trustee or to perform director duties on behalf of the principal.  It is considered that the office of a director or trustee is a personal responsibility and can only be discharged by a person who holds the office.

3.  The power of the enduring attorney to perform trustee duties for the SMSF member is conferred by the Superannuation Industry Supervision Act 1993.  It allows the enduring attorney as the legal personal representative to act as trustee or director of the corporate trustee in place of the member, and therefore effectively holds office in these capacities.

Section 17A(3)(b) provides that a superannuation fund does not fail to satisfy the SMSF trustee requirements if “the legal personal representative of a member of the fund is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member during any period the legal personal representaitve has an enduring power of attorney in respect of the member of the Fund”.

4.  Once appointed, the legal personal representative or enduring attorney is not an agent of the principal in the trustee position, but is a trustee or director in their own right and assumes individual liability in that capacity (ATO SMSFR 2010/2).

Documentations

From the above, it can be seen that the documentations to enable the Enduring Attorney to act as trustee for a SMSF member is a two-step process.

1.  Appointment of an enduring attorney in the approved form pursuant to the powers of attorney legislation of the applicable state.

2.   Appointment of the enduring attorney as the replacement trustee or replacement director and removal of the member as the trustee or director of the corporate trustee of the SMSF, with appropriate ATO and ASIC lodgements.

What it means

1.  While the EPOA is current and the trustee documentations have been put in place properly, the member remains a member but is absolved from the trustee responsibilities.

2.  The EPOA survives the incapacity of the principal and can be triggered once the member becomes incapacitated and the enduring attorney (legal personal representative) is appointed as the replacement trustee.

3.  However, the use of the EPOA in SMSFs is not confined or contingent upon the member becoming incapacitated. In fact, the EPOA can be used much more widely. The member can always relingusih their trustee functions to the enduring attorney as the replacement trustee so that they can pursue other activities or lifestyle choices.

4.   It also allows SMSF members to live and work overseas and continue to maintain their SMSF. The appointment of the enduring attorney as trustee will enable the SMSF to meet the central management and control test of resident superannuation funds, which is an important requirement to qualify as an Australian superannuation fund. As long as the EPOA and the appointment of the enduring attorney as trustee /director is current, there is no requirement that the member should come back to Australia to live.

5.   It is possible to restrict the power of the Enduring Attorney through a limitation clause in the EPOA document.

How to remove the Enduring Attorney as trustee of the SMSF?

The enduring attorney can be removed by:
1.    revocation of the EPOA or deemed revocation e.g. on marriage of the member or
2.    resignation of the enduring attorney or
3.   restating the member as trustee / director of corporate trustee while the EPOA is current.

TOWNSENDS BUSINESS & CORPORATE LAWYERS has in place documentations necessary for the appointment of EPOAs in the SMSF context, as well as separate EPOAs. We have documents available for each State of Australia.  For assistance in this area please contact Maria Siu on (02) 8296 6222.