We read regularly the many variations on what a self-managed superannuation fund member should do to guard against the unfortunate things which could prevent them from managing their SMSF successfully. But today I want to look at one particularly difficult area: dementia.
Dementia is very prevalent among older Australians — the government’s own estimates suggest there are up to 400,000 people with dementia and about 1.2 million involved in the care of someone with dementia.
Most of the time advice on third-party management of your SMSF recommends putting in place an Enduring Power of Attorney so that the member can step down as an individual trustee (or a director of the corporate trustee) and the person with the EPA appointed to manage the SMSF.
An EPA is a legal agreement that enables a person to appoint a trusted person to make superannuation decisions on their behalf. It is made by choice and executed by anyone over the age of 18 who has full legal capacity.
However, if an SMSF member is already suffering from dementia, they do not have the full legal capacity to understand the implications of giving an EPA to another person.
Therefore, an EPA cannot be put in place. Family members may encounter situations where their loved ones suffering from dementia (normally an elderly mother or father) has an SMSF with quite a lot of assets but no one has an EPA to take over the management of the SMSF.
What this means is the SMSF no longer meets the legal structure of an SMSF. Under the superannuation law, all members must be either an individual trustee or a director of the corporate trustee of an SMSF. A member with dementia has a legal disability so they are unable to perform these roles.
W hen a super fund no longer meets the legal structure of an SMSF, it has six months to restructure, employ a licensed trustee, or roll money into a retail super fund and wind up the SMSF. Once the six-month time period has passed, the SMSF becomes a noncomplying super fund and cannot roll money into another super fund.
However, the taxation office does have the ability to treat a super fund as an SMSF beyond the six-month time frame if you approach it for an extension.
Where there is no EPA put in place, the only option that is available is for someone (usually a family member) to apply to the Civil and Administrative Tribunal in their state for an administration order or its equivalent in their state. The tribunal is set up for the purpose of dealing with the financial and personal affairs of an incapacitated person.
Medical evidence that supports the SMSF member’s mental status will need to be presented. While it is good that this process is available it is possible to avoid these dramas by acting well in advance.
SMSF members really should have better risk management strategies in place. To avoid having your loved ones go through this rather arduous process, every SMSF member should implement an Enduring Power of Attorney for someone to act on their behalf in the event they are no longer able to manage their SMSF.
By Monica Rule
The Australian Business Review
21 November 2017