Peter* had everything in order. A will, an enduring power of attorney, a long-standing accountant and financial planner. When he had a stroke at 71 that left him incapacitated, his family assumed the transition would be straightforward.
It wasn’t. His SMSF had a corporate trustee, a company of which he was the sole director. No one had the legal authority to make decisions on behalf of the fund. His adult child could manage his personal bank accounts and investments held in his own name. But the fund was a separate matter. Distributions couldn’t be processed. Investment decisions couldn’t be made. A property the fund was under contract to sell couldn’t proceed to settlement.
It took months to resolve, at considerable cost and stress to the family at an already difficult time. Peter’s situation shows what happens when incapacity planning stops at your will and enduring power of attorney.
Why having a power of attorney isn’t the same as being prepared
An enduring power of attorney is the document most people think of when they consider incapacity planning. It appoints someone to manage your financial and legal affairs if you’re unable to, and for assets held in your own name, it generally does that job.
If you have complex finances and significant assets, it is likely that it is held in your name alone. Companies, trusts, self-managed superannuation funds, and family arrangements - each one of these will have its own governance requirements. A power of attorney doesn’t automatically extend to those structures. The authority to act on behalf of a company, for example, comes from the company’s constitution and the Corporations Act, not from a personal legal document.
This means that even with a well-drafted power of attorney in place, there may be substantial parts of a person’s financial life that are effectively frozen if they lose capacity.
What incapacity means for your SMSF
Every SMSF must have either individual trustees or a corporate trustee. If you lose the capacity to make financial decisions, arrangements may need to be made for someone else to manage your SMSF.
An enduring power of attorney lets you nominate someone you trust, such as your spouse, adult child, another family member, or trusted adviser, to make financial decisions on your behalf.
However, having an enduring power of attorney does not automatically make that person a trustee of your SMSF or a director of its corporate trustee. They must be formally appointed in accordance with the fund's trust deed and relevant legislation.
For funds with a corporate trustee, the company's constitution and director appointment arrangements must also be considered. This can be particularly important where you are the sole director.
Without appropriate arrangements, replacing a trustee or director after you lose capacity can be complicated, time-consuming, and potentially costly.
The best time to plan is while you are well and able to make these decisions. Having an enduring power of attorney in place, reviewing your SMSF's trust deed and corporate trustee arrangements, and ensuring there is a clear succession plan can help protect your retirement savings and avoid unnecessary complications for your family.
Business interests and other entities
For business owners and people with assets held through companies or trusts, the questions are similar.
Who has authority to make decisions on behalf of a company if the director loses capacity?
Who can manage a family trust if the appointor or trustee becomes incapacitated?
Are there other directors or trustees who can act, and do they have the information and authority they need to do so effectively?
In many family arrangements, one person holds most of the decision-making authority, formally or in practice, and the structure hasn’t been designed with their absence in mind. A business that depends on one person to sign off on decisions, access accounts, or manage key relationships can quickly fall into crisis if that person is suddenly unavailable.
Information is key
Having a power of attorney in place is the starting point. Next, you should ask whether the person you’ve appointed has both the authority and the information they would need to manage your financial life if you were unable to.
Authority means they can legally act across your personal assets and, where properly arranged, across your entities. Information means they know what exists, where it is, who to contact, and what decisions can’t wait.
It’s also worth being honest about whether the person you appointed five or ten years ago is still the right choice. Circumstances, relationships, geography, and capacity all change over time. Reviewing who holds authority over what, and whether that still reflects your intentions, is a small time investment against a significant risk.
Your accountant and solicitor should have this conversation together to ensure your financial structures align with the legal arrangements in place.
How we help
At Accounting Heart, we work with clients whose financial lives span multiple structures and entities. If you haven’t reviewed your incapacity arrangements recently, or if you’ve never looked at them through the lens of your SMSF, your company, or your trust, we encourage you to reach out to us today. Book a discovery call.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and/or other advice as may be appropriate having regard to their particular circumstances.
*Names were changed