Why you must have an Enduring Power of Attorney for your SMSF

Happy Senior Couple Sitting on a Sail BoatAround 7 out of 10 SMSFs have individual trustees, the majority with 2 spouses acting as joint trustees (e.g. husband and wife).

Under these circumstances, you must have an Enduring Power of Attorney (EPoA) in place.

The likelihood of one (or both) trustees losing capacity before death is high and without an EPoA, the consequences could be disastrous for your SMSF.

Generally speaking, both SMSF trustees are required to make decisions. If one trustee loses capacity, they must be removed from the SMSF otherwise the remaining trustee won’t be able to run the Fund. Where the departing member has an EPoA, the nominated party will step into their shoes. This ensures a trusted replacement for the departing trustee and means the SMSF continues to operate like before.

However, if an EPoA has not been nominated, the outcome is very different.

Once the incapacitated trustee leaves the SMSF, the remaining trustee must find a replacement. For SMSFs with individual trustees, a Fund with fewer than 2 trustees is non-complying under the regulations. In simple terms, this means the ATO can step in and remove the Fund’s concessional tax status which of course would be catastrophic.

To avoid this, the remaining trustee has 6 months to find a suitable replacement and broadly speaking, has the following options:

1) Appoint an individual replacement

The remaining trustee may appointment another individual. The choice of person must be carefully considered as they will have equal say in running the Fund. For this reason, it is advisable for the remaining trustee to seek advice from an SMSF specialist before appointing an individual replacement.

2) Appoint a corporate replacement

Instead of an individual replacement, the remaining trustee could set up a company to act as trustee (corporate trustee). This may be a better option because it doesn’t involve bringing another party into the SMSF, but the Fund would incur the cost of establishing the company.

3) Appoint an Registrable Superannuation Entity (RSE)

Another option is to transfer trustee duties to an RSE. However, this will convert the Fund from an SMSF to a small APRA fund (SAF). A SAF generally provides the freedom and flexibility of a SMSF but without the associated trustee responsibility. As RSE’s take over the ongoing trustee responsibilities, the remaining spouse needs to be mindful that the fees to run the Fund may be greater than before.

It’s also important to mention the issue of what to do with the incapacitated member’s super interests. The obvious solution is to rollover their entitlements to a retail or industry super fund, but this may be problematic because the regulations state that individuals have to be of sound mind to consent to a rollover of superannuation benefits.

An EPoA can avoid all the issues above.

Typically, each spouse makes a nomination in respect of the other. This still means an incapacitated spouse must be removed as trustee, but the regulations now permit the SMSF to continue as before with only one trustee. Furthermore, the incapacitated spouse is able to remain a member of the SMSF which means there isn’t the issue of having to rollover their super interests to another fund.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.