Should your attorney have carte blanche over your super?
Appointing an attorney to look after your finances if you become mentally incapable is a good idea but should there be limits?
People generally don’t like to think about the possibility of becoming mentally incapacitated, caused either through illness, or physical accident.
If you have thought about the unthinkable, you may have signed an ‘Enduring Power of Attorney’ (EPOA) which grants a nominated person legal authority to make financial decisions on your behalf should you lose mental capacity.
Despite the obvious appeal of planning your affairs, the question of how an EPOA may impact your SMSF has up until recently been fairly ambiguous. For example, according to the recent Queensland Supreme Court decision in Re Narumon Pty Ltd [2018] QSC 185, your appointed enduring attorney may make, confirm or even revoke a Binding Death Benefit Nomination.
Whilst the appointment of an Enduring Power of Attorney is important for managing your affairs, it can give rise to a conflict of interest. Consider the following scenario:
• Tommy is an elderly man with onset Alzheimer's.
• He has appointed his friend Chris as his enduring attorney.
• Chris is also a beneficiary of Tommy’s Self-Managed Super Fund.
• After spending considerable time in the dementia ward of a nursing home, doctors have informed Chris that his friend is at Stage 7 and is nearing death.
Depending on the governing rules of the SMSF Trust Deed and the nature of powers bestowed via the EPOA, Chris could essentially choose one of two paths.
Chris may, as an enduring attorney:
1. replace his friend as trustee and choose to wind up the Fund; or
2. replace his friend as trustee and choose to administer the Fund in his stead.
Regardless of the path Chris may take, it is imperative that he avoid a conflict of interest between his duties as an enduring attorney and as trustee of the Fund.
Section 12 of the Powers of Attorney Act 2003 (NSW), for example, informs us that an EPOA should not function to benefit the attorney’s personal interests (the exception to this rule being if the instrument creating the EPOA expressly allows such an action).
For further information, please contact Jeff Song at Townsends Business & Corporate Lawyers.