One of the key attractions to self-managed super is the greater control it offers over your retirement savings. Any SMSF trustee – whether you’re an individual trustee or a director of a corporate trustee – knows that this control comes with significant responsibility. But what happens if one day you find yourself no longer able to run your fund?

Many trustees engage professionals to provide financial and investment advice, and to help manage their reporting and administrative obligations. Even so, as an SMSF trustee, ultimate responsibility for running your fund rests with you.

One day, you might find yourself unable to meet your responsibilities. This could come out of the blue and at any age. You might have an accident, or a serious medical issue (physical or cognitive). Or, it might simply occur as a result of getting older. As we move into our frail years, we may find that life and financial decisions become increasingly difficult, and running an SMSF may become too hard.

Under super legislation, a person under a legal disability (which includes mental incapacity) cannot be a trustee or director of a corporate trustee of an SMSF. If the fund is to remain compliant, steps must be taken to deal with this issue if and when it arises. As an SMSF trustee and member, how and when should you prepare for this possibility?

Questions to ask yourself

In terms of the ‘when’, as early as possible! You need to think about what you want to happen in the event that you lose the capacity to run your fund. This starts with a conversation with the appropriate people – your partner, your children, your financial adviser. Would you want the fund to continue, or would you want it to be wound up? If the fund is to continue, who will step into your role as trustee?

Even though the vast majority of SMSFs are run by couples, in reality one member of that couple drives the decision making, and the hands-on running of the fund. How will the partner cope if the most active trustee dies first or becomes seriously ill with something like dementia? In the absence of a willing, capable partner, what’s the back-up plan?

If you’re single, and there is no partner, who would you like to take control? Maybe you intend to rely on an adult child or a sibling. Does the person you have in mind have the capability and the willingness to do the job? Do they understand your wishes and preferences?

Choosing someone to run the fund on your behalf is an enormous act of trust, and the responsibility cannot be treated lightly. You’re essentially asking somebody else to take responsibility for ensuring the fund meets its legal and compliance obligations, as well as making decisions around investments and the payment of benefits.

Trustee succession planning becomes more complicated in the case of blended families. For example, where two members of an SMSF have been married previously, and have children from those earlier marriages.

What are your options?

Superannuation law allows an Enduring Power of Attorney (EPOA) to act as a trustee or director of a corporate trustee in place of a member who has lost capacity.

Have you made an EPOA? Making an EPOA is a smart life strategy, well beyond SMSF considerations alone. If you don’t have an EPOA, you should consider making one, and sooner rather than later. You can have more than one if you wish (for example, you might want appoint all of your children to the role).

Have you discussed with your attorney your wishes for your SMSF should they need to step into the role of trustee? Even better, introduce this person to your adviser, and together have a conversation about the possibilities.

Of course, there is also the eventuality with increasing age and frailty that running your fund simply becomes too onerous, or the benefits of having your SMSF start to diminish. There may come a time when the most sensible course is to call it quits and wind up the fund. The best way to ensure you reach this point in a considered and strategic way, is through ongoing conversations with your adviser.

Thinking ahead, and planning for all possibilities, keeps you in control and brings peace of mind. Talk to us about ensuring you have a solid plan in place should someone need to fill your shoes as trustee of your SMSF.

 

General disclaimer

This content is intended only to provide a summary and general overview of the subject matter covered. It is not intended to be comprehensive nor does it constitute advice. We attempt to ensure that the content is current but we do not guarantee its currency. You should seek professional advice before acting or relying on any of the content.

 

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