Managing SMSF Trustee Incapacity

When an SMSF member becomes incapacitated, the fund’s compliance status can be put at risk if the right legal structures aren’t in place.

For advisers, ensuring that an Enduring Power of Attorney (EPOA) is correctly executed and aligned with the fund’s deed is critical to avoid forced wind-up or trustee breaches.

Why Incapacity Planning Matters in SMSFs

All members of an SMSF must be trustees (or directors of the corporate trustee), and vice versa. The SIS Act allows a member’s Legal Personal Representative (LPR), including an attorney under an EPOA, to act in their place.

But only when the required steps and documentation are properly in place.

For more detail on how EPOA arrangements impact trustee roles and SMSF compliance, see our guide on Enduring Power of Attorney and SMSF compliance.

Encourage clients to consider: “If you were to lose capacity, who is legally authorised to manage your SMSF and are they formally appointed according to the rules?”

Why a General POA Is Not Enough

Many clients assume that appointing a General Power of Attorney will cover SMSF responsibilities. It won’t.

To satisfy superannuation law, only an Enduring Power of Attorney (EPOA) enables the attorney to step in as trustee or director upon the principal’s legal incapacity. This is clearly outlined in SMSFR 2010/2.

To comply, the following must occur:

• The existing trustee must resign or be removed.
• The appointed EPOA must formally consent to act.
• The attorney must complete and lodge the ATO Trustee Declaration and any other required documentation (e.g. ASIC form for director changes, trustee resolutions, trust deed updates).

Client Example: A member appoints their adult child as attorney via an EPOA. When dementia is later diagnosed, the adult child is formally appointed as trustee, preserving the fund’s compliance. Without the EPOA, and without following proper steps, the fund may face non-compliance or be forced to wind up.

Review SMSF Deeds and Constitutions

Modern trust deeds often include clauses that allow for the removal of a trustee who lacks capacity. However, older deeds may not address incapacity at all or may do so inadequately.

Advisers should review trust deeds and company constitutions annually to ensure:

• They permit replacement of a trustee due to incapacity.
• They align with current SIS requirements for attorney appointments.
• There are no internal conflicts with appointment processes under state law.

EPOAs and Overseas Travel

If an SMSF member leaves Australia for more than two years, the fund could breach residency requirements under the central management and control test.

Using an EPOA to appoint a resident individual as trustee can help maintain residency status, but only if that attorney is officially appointed as trustee or director before the member leaves.

Ask clients: “Are you planning to be overseas for more than two years? If so, have you formally appointed an EPOA and updated your SMSF trustee structure?”

More info: SMSF residency and central management rules

EPOA vs Executor After Death

An attorney’s powers under an EPOA cease when the principal dies.

At that point, only the executor (or administrator) of the estate can act on behalf of the deceased in relation to the fund and only if properly appointed as trustee or director.

For guidance on aligning EPOA and executor roles with broader superannuation estate planning, see our article on estate planning reviews for SMSF death benefits.

To comply with SIS Act timeframes, the executor should be appointed within six months of death (Death of an SMSF member).

Estate Planning Insight: Align EPOA and executor appointments where possible to reduce disruption and avoid gaps in fund control.

Replacing an EPOA Attorney

If a member wishes to change their attorney due to changing relationships, a breakdown in trust, or evolving circumstances, they must:

• Have legal capacity to revoke the existing EPOA
• Execute the revocation in accordance with relevant state legislation
• Notify the previous attorney in writing and
• Update SMSF records and, if applicable, lodge appropriate forms with the ATO or ASIC

Annual Review Prompt: “Is your nominated attorney still appropriate, willing, and capable of acting as trustee if needed?”

Strategic Opportunity in Annual Deed Reviews

Advisers should treat annual SMSF deed reviews as a proactive compliance and estate planning opportunity.

Key clauses to check:

• Trustee replacement on incapacity
• Support for EPOA appointments
• Flexibility for binding death benefit nominations
• LRBA support, if relevant
• Executor appointment processes

Even with an EPOA, if the deed or constitution doesn’t allow for proper trustee substitution, compliance risks remain.

Coordinating EPOA and Executor Roles

To avoid delays and legal challenges after death or incapacity, ensure any replacement trustee is appointed:

• In accordance with the trust deed or company constitution
• In line with superannuation and estate planning laws
• And without gaps that could cause disputes among beneficiaries or attract ATO scrutiny

Final Takeaway: Protecting SMSF Continuity with Aligned Strategy

Planning for trustee incapacity is not just about compliance.

It’s about protecting a client’s superannuation wealth and ensuring uninterrupted fund management. Advisers who help clients align their EPOA, deed, and trustee structure add significant value and help avoid costly disruptions.

Need Support? SMSF Engine Supports Advisers With:

• SMSF deed reviews and updates for EPOA compatibility
• Bulk deed upgrade solutions for clients at scale
• Technical guidance on trustee appointment, incapacity, and legal documentation

Contact us to discuss how we can assist with EPOA reviews and trustee planning for your clients.