SMSF Enduring Power of Attorney Rules: How to Stay Compliant When Members Lose Capacity

When an SMSF member loses capacity or is absent for long periods, compliance risks can arise if no Enduring Power of Attorney (EPOA) is in place. Understanding how EPOA rules affect trustee appointments is essential to keeping your clients’ SMSFs compliant and functional. This guide explains the practical application of the EPOA exception to the SMSF trustee rule: what can be done, when, and how to avoid common pitfalls.

This article is designed to help accountants and financial advisers manage SMSF trustee compliance when clients appoint an enduring power of attorney.

One exception to the general rule provides some guidance to trustees and a safety net for Fund members.

This exception allows a member’s legal personal representative (LPR) to be appointed as a trustee (or trustee company director) where the member would otherwise be required to be appointed in that role. This exception requires that the LPR is the member’s attorney under an enduring power of attorney (EPOA).

When an EPOA May Be Useful

This can be particularly useful, for example, where:

• The member has lost mental capacity. If a member loses mental capacity without an EPOA in place, there may be no one with the legal authority to manage their financial affairs, as it cannot be put in place after the fact. This will often mean costly and time-consuming court applications.
• The member is absent for an extended period (e.g. overseas) – the LPR can be appointed even if the member still has capacity.

Appointing an Attorney

It is also possible to appoint more than one attorney. In this case, the attorneys can be required to act jointly or even separately depending on the member’s preferences. This can allow them to cooperate and work together in the best interests of the member.

Once an LPR has been appointed by an EPOA, they still need to be formally appointed as a trustee of the Fund (or trustee company director) in accordance with the trust deed. Even in the case of incapacity, the appointment of the attorney as trustee is not automatic.

When your clients appoint an enduring power of attorney to act as an SMSF trustee, you may need to coordinate deed updates and trustee appointment documentation on their behalf. Our SMSF deed and trustee services help advisers manage trustee appointment compliance and fund documentation updates.

Once appointed as trustee, the LPR has the same responsibilities as a normal SMSF trustee.

The LPR does not become a member of the Fund merely by taking on the role of trustee (or trustee company director).

When an EPOA Ceases

An EPOA will cease:

• if revoked by the member;
• on the death of the member;
• on the death of the attorney; and
• if the attorney becomes bankrupt.

Lastly, the rules for executing an Enduring Power of Attorney vary from state to state, so it is important to ensure compliance with state legislation.

Examples of How the Exception Works

Example 1

Mike and Anna are individual trustees and members of J&J SMSF. Mike works for an international company and has recently been transferred to an overseas posting for an unknown period. Both Mike and Anna execute an EPOA in favour of their friend Nicholas. Mike and Anna will resign as trustees while Nicholas will be appointed as a trustee in their place in accordance with the Fund’s trust deed.

If Mike was to travel by himself, he could execute an EPOA in favour of Anna. In this case, Mike is still required to resign as trustee of the SMSF. However, as Anna is already a trustee of the SMSF, she does not need to be reappointed.

Mike and Anna remain as the members of the Fund.

Using an EPOA in this example ensures the Fund can continue to meet the definition of an Australian resident fund. This highlights the practical importance of aligning SMSF and enduring power of attorney documentation to ensure ongoing compliance. Note that in some cases, it may be necessary that no contributions are made into the Fund for a member who is a non-resident.

Example 2

Alicia is the only member and sole director of the corporate trustee for her SMSF. She is retired and would prefer not to deal with the duties of being a trustee. She executes an EPOA in favour of her daughter Samantha. As a result, Alicia resigns as a director of the corporate trustee and Samantha is appointed in her place.

Alicia remains as the sole member of the Fund.

Advisers managing SMSF clients through capacity changes, overseas moves or trustee transitions often need tailored documentation support to maintain compliance. Our SMSF legal documentation and deed services are available to help your firm handle these situations with confidence.

If you work with SMSF clients at risk of incapacity or residency issues, we can support your firm. Contact us for an SMSF compliance review or to ensure enduring power of attorney and trustee appointment arrangements are correctly managed for your clients.