A Legal Personal Representative (LPR) plays an important role in the operation of an SMSF (as allowed under SIS Act Section 17A). There are limited exceptions to the rule that all SMSF members must be a trustee and all trustees must be a member. One of those exceptions is where a trustee appoints an LPR to act on their behalf via an Enduring Power of Attorney (EPOA). The appointment might be for a limited period of time when the trustee is unable to act, or it might be permanent if a trustee were to suffer a loss of mental capacity. If a trustee 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.
It is also possible to appoint more than one attorney who can cooperate and work together in the best interests of the principal.
Once an LPR has been appointed via an EPOA they still need to be separately appointed as trustee of the fund in accordance with the requirements of the trust deed. Even in the case of mental incapacity, the appointment of the attorney as trustee is not automatic.
Once appointed as trustee, the attorney has the same responsibilities as a normal SMSF trustee; however they do not become a member of the fund.
SMSFR 2010/2 sets out a number of examples where an enduring power of attorney for an SMSF trustee can be used.
James and Jenny are individual trustees and members of their J&J SMSF. James works for an international company and has recently been transferred to an overseas posting for an unknown period. Both James and Jenny execute an EPOA in favour of their friend John. James and Jenny will resign as trustee while John will be appointed as a trustee in accordance with the fund’s trust deed.
If James was to travel by himself, he could execute an EPOA in favour of his wife. In this case, James is still required to resign as trustee of the SMSF; however as Jenny is already a trustee of the SMSF she does not need to be reappointed.
Using an EPOA in this example ensures the fund can continue to meet the definition of a resident complying fund. It is also critical that no contributions are made into the fund for a member who is a non-resident.
Cindy 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 Kate. As a result, Cindy resigns as a director of the corporate trustee and Kate is appointed in her place.
An EPOA will cease:
When revoked by the principal;
On death of the principal;
On death of the attorney; and
In the event 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.