Question: My husband and I are in our mid to late 50s. Last year both of us rolled our retail superfund balances into our self-managed superfund (SMSF). Once the kids finally moved out of home, we managed to build up some investment assets – such as shares and real estate. We haven’t updated our Wills since we got married 30 years ago.

What do we need to know to get the right Will? What else do we need to know to make sure everyone’s looked after when we’re gone?

Platinum Member, Dandenong, Vic.

Answer: Your personal situation is becoming more common every year. Every year more people decide to take charge of their own destiny and manage their superannuation using a SMSF. The imposition of compulsory superannuation has added an additional layer of complexity to estate planning. Not only do you need to consider your obligations under the relevant state laws governing inheritance – you are also need to consider income tax, transfer duty, capital gains tax and superannuation non-dependency tax.

When you have accumulated capital appreciating assets and superannuation, you need to consider what kind of tax burden you are loading up your beneficiaries with when you die. I recommend you consult your financial adviser to discuss your future needs – and then make a time for you and your adviser to see me or one of my team. Together, we can assist you to develop an appropriate Estate Plan to ensure that your assets are passed to the people you intend to receive them – without lumping them with a huge tax bill in the process.

It is appropriate for most people in your circumstances to consider a 3 Generation Testamentary Trust Will, Mutual and Enduring Powers of Attorney, and Non-Lapsing Binding Death Benefit Nominations (sometimes called an SMSF Will). Here’s why:

Our beloved Platinum Members discover how the 3 Generation Testamentary Trust saves tax.

Create Powers of Attorney

A power of attorney gives someone the authority to do things on your behalf. 'They stand in your shoes'. The person you appoint can do most financial things that you yourself could do. If you want them to have the power to sell and buy property on your behalf, then lodge the Power of Attorney at your local Land Titles office.

You must have mental capacity to give a Power of Attorney to someone. However, enduring Powers of Attorney continue even if you lose mental capacity.

You choose whether your Power of Attorney comes into effect immediately, or whether it only comes into effect if you are of unsound mind. You can choose to give an immediate power of attorney to your spouse. If your spouse cannot act, then you appoint ‘back-up’ attorneys who can only act if you are of unsound mind.

Why are Powers of Attorney so important?

Sadly, your spouse gets Alzheimer's disease at 55 years of age. You decide that you want to sell the large family home, and buy a smaller home closer to amenities that can help your spouse.

The family home is in both your names. Your spouse no longer has the mental capacity to sign documents. You have no power of attorney. Therefore, your only option is to apply to the Guardianship and Administration Board for permission to sell the home.

During this court procedure, you are forced to make your children swear in court that you are not a spendthrift. They contact your friends, family members and even neighbours. At the hearing, you are cross examined. They want to see that you are a good enough person to look after the affairs of your wife or husband.

Eventually this government department tells you that you are allowed to sell your home. However, it directs you to hold your spouse's half of the proceeds in a separate bank account. You also have to pay some money from this each week to look after your wife or husband. The department insists you keep accurate records of what you spend, even down to the toiletries for your spouse.

Without all the proceeds of the sale of the home, you cannot afford to buy another property.

You could have prevented this problem if you and your spouse had given each other a Mutual Power of Attorney.

What happens to your SMSF if you lose you marbles? Can your Power of Attorney do the job for you?

Usually, a fund with a member that is not either:

• a trustee; or
• a director of the corporate trustee

fails the definition of a Self Managed Superannuation Fund - section 17A of SIS. However, there is an exception to this in section 17A(3). A legal personal representative who holds an enduring power of attorney granted by a member may be a trustee of the SMSF, or a director of the corporate trustee of the SMSF, in place of that member without causing the fund to fail to satisfy the definition of an SMSF.

The ATO gives guidance in SMSFR 2010/2.

How do you appoint a Power of Attorney as Trustee in my place?

Only instruct a specialist law firm such as Civic Legal to:

1. Set up the Special Enduring Power of Attorney with the required restrictions and extra express powers to comply with SIS Act.
2. Update the Self Managed Superannuation Fund deed to allow the Special EPA to replace the human trustee or corporate trustee. And then change the trustee or directors as required for the deed. (You change the director yourself if there is a corporate trustee).
3. Prepare a Deed of Control and Management between the Complying Manager, old Trustee and member.
4. Prepare a Deed of Indemnity to protect the incoming Complying Manager.

To instruct Civic Legal to prepare the SMSF Power of Attorney, email these documents to me at Brett.Davies@civiclegal.com.au:

1. Self Managed Super Fund Deed and all variations (if any)
2. Latest financials
3. Letter of advice setting out the full details of the current members, trustees and the new Complying Manager

Must you also make the Power of Attorney a member of the SMSF?

Strangely, the ATO does not require that the donee (the person holding the enduring Power of Attorney) be a member.

What are some of the tricks and traps of giving a Power of Attorney over your SMSF? At Civic Legal, we’ve seen some doozies. Platinum Members read on to arm yourself with the usual suspects – and discover how to avoid them.

1. Giving a SMSF Power of Attorney with a Regimented Deed

You need to make sure your trust deed allows you to give an enduring SMSF Power of Attorney. The resignation of the member from being a trustee must be according to:

• Your trust deed;
• The SIS Acts and Regulations; and
• Other relevant legislation.

What is one of the main sticking points? Although Civic Legal is the biggest supplier of SMSF trust deeds in Australia, there are still many deeds not prepared by us. Most other SMSF deeds prohibit non-members from acting as a trustee of the SMSF. Again, why lawyers put useless rubbish and restrictions into a SMSF deed is a strange phenomenon. Like Family Trust deeds, SMSF deeds should be permissive, not regimented. Permissive deeds allow you to do whatever you like but subject to the law (e.g. SIS Regulations). Whereas, regimented deeds try and "help" the member by incorporating all the legal restrictions into the deed. This is all very quaint but every time the laws change, you need to update a regimented deed. At Civic Legal, we draft permissive deeds - they need less updating.

2. Using the incorrect Power of Attorney

The SIS Acts and SMSFR 2010/2 make it clear that only a current SIS complying 'enduring' power of attorney is appropriate – see section 17A(3)(b)(ii).

So what is an 'enduring' power of attorney? Unfortunately, the SIS Act doesn't define it. Essentially, it is a power of attorney that is effective immediately and continues even if the person giving the power of attorney loses legal capacity. You can't give a power of attorney if you lose legal capacity.

The laws surrounding enduring powers of attorney are different in each state, yet the Superannuation Laws operate Australia-wide. Luckily, the SIS Act says that as long as you properly comply with the formalities of your particular state's power of attorney laws, then (as long as you do everything else properly), your enduring Power of Attorney over your SMSF is valid.

This is a complex area of law. You need a specialist law firm to prepare the SMSF Power of Attorney and supporting documents such as the Warranty Deed.

Build these documents now

• Enduring Power of Attorney - WA
• Enduring Power of Attorney - VIC
• Self Managed Superannuation Fund Deed
• Investment Strategy for Self Managed Super 10/11
• SMSF - Deed Update
• Investment Strategy for Self Managed Super

Read these bulletin articles now:

• SMSF Maverick gives Power of Attorney to Jailbird?
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