All SMSF trustees are required to regularly review their Investment Strategy. This is fair enough, but if you need to regularly review the investment strategy of a fund, shouldn’t there be an even more stringent requirement at both establishment and on an ongoing basis to review the trusteeship of a fund? From an SMSF perspective, how often do you contemplate what happens if a trustee were to die or lose capacity?
These may not be questions we like to address but they are the questions that need to be addressed at fund establishment and on an ongoing basis. Ultimately, disputes happen after a member has passed away. These disputes could quite possibly be avoided if we all pay as much attention to fund trusteeship as we do the investment strategy or the financial statements.
There is no greater issue for SMSF members than who controls the fund when you can’t. There are four documents that all trustees should regularly review with their advisers, five once they start a pension:
- Member’s will
- Member’s Enduring Power of Attorney (EPOA)
- Member’s nomination of beneficiary
- SMSF Trust Deed
- Pension contract (once it has started)
Arguably, no-one should be comfortable establishing an SMSF until they have discussed the first two documents with someone appropriately qualified. Superannuation law provides some guidance on what can be done in the event something happens to a member but it’s not compelling. The law states that in the event that a member has died, the member’s legal personal representative ‘MAY’ be appointed, which clearly infers it’s not mandatory without further safeguards put in place. If a member hasn’t got a will or an EPOA, then ‘may’ has even less meaning. Of course, there are those clients who have a Court or otherwise appointed Legal Personal Representative but this still doesn’t overcome the weakness of the law.
Strength can come from the Trust Deed, where the Deed imposes a requirement in the event of death or incapacity but again the wording will be important. There are plenty of Deeds around that don’t mandate any appointment.
Of course, all this leads to the important issue of who a member appoints to act on their behalf both under an EPOA or in the event they die. Is it their spouse who already understands the responsibility of being trustee? What if their capacity is waning or they have passed away at the same time? Are there any children and are they interested in the role? Do they want the responsibility?
What if a member doesn’t lose capacity but wants to travel and appoint an EPOA to act on their behalf whilst away? Does that person want all the responsibility that goes with being a trustee?
That brings us to the last two documents on the list that should, if they don’t already, go hand in hand in unison. The nomination of beneficiary and pension contract. Who do you want to receive your money? We all have an answer to that but do we provide instructions that lead others to the same conclusion? If we haven’t reviewed the other three documents can we be sure that our instructions will be followed?
Having an SMSF with the perception that you have control is one thing; actually having and maintaining that control beyond your own capacity or life is another. It is something that needs to be reviewed at worst as regularly as the fund’s investment strategy, at best at every family occasion where you are reminded that you can choose your friends but not your relatives.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
