All superannuation funds require a Trustee to manage them, so the questions is who (or what) can be a SMSF Trustee and how do they manage the core risks involved?
What is a SMSF Trustee?
An SMSF must have either a corporate trustee managing them, or individual (human) trustees. When you set up an SMSF you take on the role of either:
- Individual Trustee, or
- Director of a company acting as the trustee (called a corporate trustee)
An Individual Trustee (human) is simply a person who manages a trust and a Corporate Trustee is a company entity that acts as trustee of a trust. Many SMSFs us a Corporate Trustee structure where a company, rather than an individual human, acts as the Trustee of an SMSF.
With great power comes great responsibility
The power of a Trustee is significant, and needs to be protected. Trustee of an SMSF decides how much money you can be put in the fund, who can become members, how the funds are used and invested, how much gets paid out to a member and when, and finally who gets what’s left over when a member dies.
What's a Corporate Trustee?
SMSFs who use a company structure to act as its SMSF trustee, usually with members of the SMSF acting as directors of that company, are said to have a Corporate Trustee.
This creates problems when;
- there is only a single member of an SMSF, or
- when there is a single director of the company acting as the Corporate Trustee of the SMSF.
The Directors of that SMSF Trustee company need to have adequate protections in place, and this includes a Company Power of Attorney document.
- Not having this protective document in place presents is an unacceptable risk to the SMSF members
- Not having this protective document in place when the Corporate Trustee only has a sole director, is an unacceptable risk.
- If your current SMSF Advisor has not brought this risk management issue to your attention, perhaps it's time to find a better SMSF Advisor.
The Law: The Corporations Act 2001 (Cth) requires a company to have at least one director. Without a director, a company in breach of the Act, and the business may not be able to operate properly. For these reasons alone, you need to have a plan in place if you are not able to act as a director of your company.
What's the problem facing an SMSF Trustee?
If the Director of the Trustee company becomes incapacitated and unable to continue to make decisions, the Trustee company can become locked.
The SMSF becomes unworkable without a person with a SMSF corporate power of attorney document in place authorising another individual to step into the decision making void, left vacant by the incapacity or absence of a functioning director.
- The Trustee company loses its ability to act without a functioning director, and is then a ship without a rudder.
- The SMSF Trustee Power of Attorney provides continuity of company affairs and good stewardship.
Important: The role of Company Director is one that cannot be exercised under a personal Power of Attorney document.
When does its need arise?
Depending on your company SMSF Trustee constitution, a director’s role is usually automatically vacated on a director’s incapacity or death. In these situations, you need to have someone ready and capable of taking control of the company immediately.
- A Director is the decision maker of a company and this role cannot be inherited, gifted, or addressed under a personal Power of Attorney.
- If you're the sole director and shareholder of a private company, you must have a backup plan in place if you lose the mental capacity to continue to make decisions, (or even die).
Failing to have a documented plan for this eventuality will leave the trustee company and its funds members vulnerable.
When to establish a SMSF Trustee Power of Attorney?
Under the Corporations Act, a company is allowed to appoint an attorney and it is not necessary to have a specific power in the Company constitution to do so.
- Do you have a SMSF with a Corporate Trustee structure?
- Are you the sole director and shareholder of a company that acts as a Corporate Trustee for a Trust or a Self-Managed Super Fund (SMSF)?
If you answered 'Yes' to any of the above, then you need an SMSF Trustee Power of Attorney.
This is not something you can continue to put off
It can cause real distress and financial hardship to your family if you are the sole director of your Corporate SMSF Trustee company and there is no one authorised to direct or manage that company business if you lose legal capacity, or die.
- Failure to plan for this eventuality can affect the Compliant Superannuation status of the fund and many leave you personally liable for the loss sustained by the members of the SMSF.
Pro Tip: If a company SMSF Trustee director dies, does the Company SMSF Trustee Power of Attorney stop working? No. It does not. A Company SMSF Trustee Power of Attorney is given by the company, and not by the director. Directors come and go, move on and even pass away. Unlike a personal Power of Attorney, the movement of company directors has no bearing on a Corporate SMSF Trustee Power of Attorney that continues until revoked.
How we can help
- We work with SMSF Trustees and law firms and we can supply this legal document.
Contact us for a confidential chat about your current SMSF needs.
Power of Attorney for Singles - what a General Power of Attorney can do for you
Single people – whether living single, parenting solo, single again, or just single for now – single people have unique risks when it comes to setting up their estate planning documents and Wills.
- Single people value their independence and autonomy.
Freedom comes at the cost of having to rely upon yourself, your ability to make good decisions and having a backup plan, just in case. It could be said single folk are at the highest risk of needing a personal backup plan, just in case, to help them maintain their independence.
There will always come times during busy lives when we all need to rely upon another person to help out with managing life and decisions, whether that's because we're temporarily absent or perhaps just recovering from a sickness or injury before we get back on our feet.
The simplest and most used estate planning document for Single people is a Power of Attorney.
What does a Power of Attorney do?
A Power of Attorney is a legal document that allows you to appoint someone (called your Attorney) to make decisions on your behalf (and usually manage your financial and legal affairs) when you are unable to do so.
- Any decision made by your Attorney will have the same legally binding effect as if you had made that decision yourself.
- A general Power of Attorney document gives your Attorney the ability to make important legal decisions on your behalf and it's therefore wise to choose your Attorney carefully.
Caution: Not to be confused with an Enduring Power of Attorney document, (EPOA) a general Power of Attorney (POA) deals with your assets, for example, real estate and bank accounts. Your POA does not deal with your health, medical treatment or lifestyle. This is managed under a separate document usually called an Enduring Power of Attorney (or Enduring Power of Guardianship).
When do you need to set up your Power of Attorney?
Probably yesterday.
A Power of Attorney document is particularly relevant of a single person (and very relevant for a single parent).
One of the common mistakes we see people make is leaving foundational legal decisions, until the last minute. There are some legal documents you need to have already in place before you need to use them, otherwise, it can be too late to put them in place.
- , In the same way, you get your driver's license issued before you hire a rental car at the airport, in the same way, you need to get your home insurance in place before the bush fire surrounds your house, and in the same way, you need to get you Crisis Insurance policy in place before you are diagnosed with a terminal illness, a General Power of Attorney needs to be documented, signed and in place before you need to use it.
How long does a Power of Attorney last?
You get to decide.
A general power attorney can take effect for a specified amount of time. For example, you may plan to spend 6 months overseas and would like someone to manage your financial affairs for you while you are away.
Alternatively, you can set a period of time linked to a specific event – like moving house for you when you are undergoing surgery or medical treatments where you have reduced mobility.
A general Power of Attorney can also remain active until you revoke it. For example, many elderly clients transfer the day-to-day management of their financial affairs to an adult child when they're physically ill or unable to manage their affairs due to reduced personal mobility (ie: they have surrendered their driver's license, cannot attend the bank due to mobility issues, have deteriorating eyesight and struggle with documentation —even though they are still mentally capable.
What decisions can be made using a Power of Attorney?
Virtually anything that you can legally do, your appointed Attorney can do on your behalf.
This means your Attorney can do the following:
- deposit and withdraw money from your bank accounts on your behalf
- enter into and negotiate legal agreements on your behalf (such as real-estate leases, renewing licenses or other contracts) and related
- buy or sell shares & investments on your behalf
- buy or sell real estate on your behalf
This can include both short term, fixed term or ongoing management on your behalf. For example, for an immediate short-term need, such as an extended overseas trip, a fixed term event such as completing the sale of a property, moving house interstate or having general anesthesia and surgery, or a long-term need to plan for a frail aged person, someone with a disability or perhaps a complex illness with invasive symptom management like dialysis or chemotherapy.
What does a Power of Attorney not do?
There are two exceptions to the available authority granted under a Power of Attorney:
- The Power of Attorney will not be effective in delegating to another person any responsibility you have as a Trustee. This includes where you are an Executor of a deceased estate. Separate laws relate to the delegation of authority as a Trustee.
- The Power of Attorney equally will not be effective in delegating your authority in your capacity as a Director of a company. Delegation of authority by a Director is governed by the Corporations Act.
Frequently Asked Questions
Does my nominated Attorney have to accept their role as Attorney?
It is important to discuss with a potential attorney whether they would be willing to accept the role, as a Power of Attorney or Medical Decision Maker appointment is not valid until both you and your nominated Attorney(s) sign the document accepting the appointment/position.
Can I have more than one Attorney?
You can appoint as many Attorneys as you wish (but more than 3 can become unworkable).
Where you wish to appoint more than one Attorney, you need to decide as to whether the Attorneys are to act jointly or jointly and severally.
- Jointly means that the Attorneys must all sign documents or act together on your behalf.
- Severally means that either or any of the Attorneys may act on your behalf in signing documents and so on.
- Where reference is made to Jointly and/or Severally, then both options apply.
You can also make provision for a Substitute Attorney or Attorneys in case the first appointed Attorney or Attorneys are unable to be your Attorney due to their own sickness, disability, death or unwillingness to act. If you appoint more than two Attorneys, then you may decide whether you wish for a majority rules type approach; for example, two out of the three Attorneys must act together.
How we can help
If you're a single person, setting up your Power of Attorney for Singles is a key step in helping you maintain your independence (and if you're in a vulnerable business structure, an important key legal document to safeguard your business interests too)
Contact us for a confidential chat about your needs.
Related: Types of Personal Estate Planning documents we work with
Protective Wills – and when you might use them
There are many reasons why you would consider creating a Protective 3-Generation Testamentary Trust Will. We work with two main types of Wills: Protective 3-Generation Testamentary Trust Wills and Simple Non-tax effective Wills. We refer to them as either Protective or Simple as they each provide varying levels of protection to the beneficiaries of your Will.
If you have the budget, it's always better to have a Protective 3-Generation Testamentary Trust Will because it contains 5 Advanced protective trusts for your Wills beneficiaries.
Five Protective trusts embedded in a Protective Will
- 3–Generation Testamentary Trusts – reduces CGT, income tax & transfer (stamp) duty
- Super Testamentary Trust – reduces the 17% or 32% tax on Super going to adult children
- Bankruptcy Trusts – helps to shield inheritance assets if a beneficiary is bankrupt
- Divorce Protection Trust – helps shield inheritance assets if an adult child separates
- Maintenance Trust – where beneficiaries are under 18 years of age or unstable
A Protective Will provides the Will Maker with much more in-depth ways to distribute their estate. (This is why the Protective Will document is usually 40+ pages).
If your family home, superannuation, life insurance and other assets, when combined are over $1m in value then you clearly need a Protective 3-Generation Testamentary Trust Will. However, if your assets are under $1m then the benefits, while still there, are not as significant.
When might you need a Protective Will?
There are many reasons people choose a high level of protection for their testamentary decisions but the most common are related to beneficiary protection and asset protection.
- If you want to protect your Wills nominated beneficiaries from the financial risks of relationship breakdown, divorce, bankruptcy, addictions or unstable or vulnerable situations, and/or
- If your family home, superannuation, life insurance, and other assets, when combined are over $1 million in value
Pro Tip: As your circumstances change over time, you can always modify and upgrade your Will.
Happy leaving your money to the government?
Every year, Australian tax payers voluntarily pay the Tax Office millions of dollars in “Death Taxes”. Capital Gains Tax earns the Australian Federal Government more money on deceased estates in a single year than in the cumulative history of death duties. Are you going to be one of them? Proper Estate Planning ensures that your estate goes to those you care about, and not the Tax Man.
Looking ahead
How it connects to your other key Estate Planning documents
Modern Estate Planning involves three key decisions that are separately documented in three key legal documents:
- A Power of Attorney
- A Power of Enduring Guardianship, and
- A Will (Simple or Protective)
Important: All three legal documents have specific powers that can only come into affect during different periods of your life.
- A General Power of Attorney is active only while you have your mental capacity.
- A Enduring Power of Attorney only comes into force when you have lost your mental capacity, and another person needs to make medical and lifestyle decisions for you.
- A Will only comes into effect after you have passed away. (Your authority under your Power of Attorney and Power of Guardianship have ceased at this point in time).
This is why it's important to have all three key legal documents in force, so if there are ever unexpected changes to your personal situation that need the legal assistance of another, you have the 3 required documents in place that reflect your own decisions made and activated ahead of time.
Mental Capacity is an important legal term.
In making an estate planning document, a person must have the mental capacity to know what they are doing. They must know, by their actions, they are making documents that provide their nominated Attorney that legal authority to make important decisions for them why they are alive, and the Executor of their Will, power to distribute their property after death.
What is Secure Document Storage for Estate Planning & Wills?
Permanent (new) document storage available for Sapience Financial clients
Lifetime storage of the physical signed (executed) copies of your Will and POA documents purchased through Sapience Financial is now available to Sapience Financial Clients.
- Your estate planning documents are physically stored with a National Safe Custody Register and your name and address details are added to their database.
- Your documents are allocated a unique number and stored in their own separated secured envelope.
- The service will confirm in writing when the original signed versions are received and secured by them, and with your permission, a scanned copy can be sent to us for local electronic storage in your Secured Sapience Customer Portal. This can be made available to you via a mobile device app with 2-factor authentication 24/7.
This is a lifetime service where every 5 years the Storage Service will confirm your Executors details for any changes.
Why is Secure Storage included in my Estate Planning process?
Document Authenticity – With your drafted legal documents, you will receive a cover letter signed by the law firm that created your estate planning documents confirming:
- these are drafted by an Australian law firm and valid in all Australian states and territories,
- that the legal advice was provided by a law firm with Client Attorney Privilege and a law firm's Legal Professional Insurance.
Physical Protection – By having the physical signed copies of these documents secured with a National Safe Custody Register, you remove any suggestion of document tampering, document switching or lost legal documents.
With secured document storage, you will receive a letter signed by the law firm securing the physical documents confirming:
- your physical documents are securely stored for life and the filing reference number,
- outlining the document access process for your future Executors to follow to access these documents when needed
This service also monitors the national newspaper obituaries to cross reference when a call on the documents may be anticipated. This is a complimentary service and clients are not obliged to use it.
How we can help
Building a Will, either Protective or Simple, is an important part of protecting your loved ones and bringing peace of mind that you have an important final piece of your Ultimate Backup Plan in place, just in case.
Contact us for a confidential chat about your needs.
Related: Types of Personal Estate Planning documents we work with
What is a Simple Smart Will?
A Simple Will is one that addresses the standard needs of a person with a small low value estate balance and who may not yet need to add future tax planning and protections for their Wills beneficiaries. A Simple Will you are build with us contains no Testamentary Trusts.
When would I choose a Smart Will over a Protective Will?
A Simple Will might be right for you if you’ve got few assets, no life insurance policies, a small family, and have no inheritances coming your way in the future.
- Many people use Simple Wills if they’re in their first marriage with no kids, and that marriage is happy.
- In this case, the Will Maker usually just wants to give their entire estate to their spouse.
A Simple Will lets the Will Maker do this clearly and concisely without any room for misunderstanding.
However, if you have an estate that in aggregate is over $1,000,000 in value and entitlement and have a number of people to provide for, then a simple will won’t cut it. That’s where a Protective Will come into play.
Pro Tip: As your circumstances change over time, you can always modify and upgrade your Will.
When would I chose a Protective Will over a Smart Will?
A Protective 3-Generation Testamentary Trust Will costs more to build however, it makes it easier for your beneficiaries to escape death duties. If you would rather have a Testamentary Trust as part of your Will, then build a Protective 3-Generation Testamentary Trust Simple Will.
When to consider creating a Protective 3-Generation Testamentary Trust Will
We work with two types of Wills: Protective 3-Generation Testamentary Trust Wills and Simple Non-tax effective Wills.
We refer to them as either Protective or Simple as they each provide varying levels of protection to the beneficiaries of your Will. If you have the budget, it's always better to have a Protective 3-Generation Testamentary Trust Will because it contains these 5 advanced protective measures:
- 3–Generation Testamentary Trusts – reduces CGT, income tax & transfer (stamp) duty
- Super Testamentary Trust – reduces the 17% or 32% tax on Super going to adult children
- Bankruptcy Trusts – helps shield inheritance assets if a beneficiary is bankrupt
- Divorce Protection Trust – helps shield inheritance assets if an adult child separates
- Maintenance Trust – where beneficiaries under 18 years of age or unstable
A Protective Will provides the Will Maker with much more in-depth ways to distribute their estate.
If your family home, superannuation, life insurance and other assets, when combined are over $1m then you clearly need a Protective 3-Generation Testamentary Trust Will. However, if your assets are under $1m then the benefits, while still there, may not be as great.
Looking ahead
How it connects to your other key Estate Planning documents
Modern Estate Planning involves three key decisions that are separately documented in three key legal documents:
- A Power of Attorney
- A Power of Enduring Guardianship, and
- A Will (Simple or Protective)
Important: All three legal documents have specific powers that can only come into affect during different periods of your life.
- A General Power of Attorney is active only while you have your mental capacity.
- A Enduring Power of Attorney only comes into force when you have lost your mental capacity, and another person needs to make medical and lifestyle decisions for you.
- A Will only comes into effect after you have passed away. (Your authority under your Power of Attorney and Power of Guardianship have ceased at this point in time).
This is why it's important to have all three key legal documents in force, so if there are ever unexpected changes to your personal situation that need the legal assistance of another, you have the 3 required documents in place that reflect your own decisions made and activated ahead of time.
Mental Capacity is an important legal term.
In making an estate planning document, a person must have the mental capacity to know what they are doing. They must know, by their actions, they are making documents that provide their nominated Attorney that legal authority to make important decisions for them why they are alive, and the Executor of their Will, power to distribute their property after death.
What is Secure Document Storage for Estate Planning & Wills?
Permanent (new) document storage available for Sapience Financial clients
Lifetime storage of the physical signed (executed) copies of your Will and POA documents purchased through Sapience Financial is now available to Sapience Financial Clients.
- Your estate planning documents are physically stored with a National Safe Custody Register and your name and address details are added to their database.
- Your documents are allocated a unique number and stored in their own separated secured envelope.
- The service will confirm in writing when the original signed versions are received and secured by them, and with your permission, a scanned copy can be sent to us for local electronic storage in your Secured Sapience Customer Portal. This can be made available to you via a mobile device app with 2-factor authentication 24/7.
This is a lifetime service where every 5 years the Storage Service will confirm your Executors details for any changes.
Why is Secure Storage included in my Estate Planning process?
Document Authenticity – With your drafted legal documents, you will receive a cover letter signed by the law firm that created your estate planning documents confirming:
- these are drafted by an Australian law firm and valid in all Australian states and territories,
- that the legal advice was provided by a law firm with Client Attorney Privilege and a law firm's Legal Professional Insurance.
Physical Protection – By having the physical signed copies of these documents secured with a National Safe Custody Register, you remove any suggestion of document tampering, document switching or lost legal documents.
With secured document storage, you will receive a letter signed by the law firm securing the physical documents confirming:
- your physical documents are securely stored for life and the filing reference number,
- outlining the document access process for your future Executors to follow to access these documents when needed
This service also monitors the national newspaper obituaries to cross reference when a call on the documents may be anticipated. This is a complimentary service and clients are not obliged to use it.
How we can help
Building a Will, either Sart or Protective is an important part of protecting your loved ones and bringing peace of mind that you have an important final piece of your Ultimate Backup Plan in place, just in case.
Contact us for a confidential chat about your needs.
Related: Types of Personal Estate Planning documents we work with
Happy leaving your money to the government?
Every year, Australian tax payers voluntarily pay the Tax Office millions of dollars in “Death Taxes”. Capital Gains Tax earns the Australian Federal Government more money on deceased estates in a single year than in the cumulative history of death duties. Are you going to be one of them? Proper Estate Planning ensures that your estate goes to those you care about, and not the Tax Man.
