THE death of a member is not the only thing that can create problems for a
self-managed super fund.
Depending on who acts as trustee, problems can be caused if a member either becomes bankrupt or incapacitated.
I had until recently believed that because all members must be trustees, all trustees must also be members.
This led me to the mistaken belief that single-member SMSFs must have a company act as trustee. This is not so. An SMSF can have one individual member trustee as long as someone agrees to become the second trustee. The problem here is that the second trustee has all the responsibilities that come with being a trustee, with none of the benefits.
Problems are also caused if the second trustee decides to pull out.
The member must then either find someone else to take on that role, appoint a company to take over as trustee with the member being a director, convert the fund to a small APRA fund, or roll over the balances to a public offer or industry fund and wind up the SMSF.
When a company acts as trustee, the death of a member does not cause any big problems for the remaining member director.
But when a member becomes a bankrupt or can no longer look after their own affairs, major problems can arise if precautions have not been taken, be they either an individual trustee or a director of the trustee company.
If members who become incapacitated have an enduring power of attorney, the SMSF can keep going.
As to who each member appoints as holding their power of attorney will depend on the family situation.
For members who are a couple, have always been married, and with only their own children, the spouse can be the first attorney and the children appointed to act jointly and separately as the alternative attorneys.
Where the members of an SMSF are in a blended family, things can become a bit more complicated.
In this case it can make sense to appoint jointly and severally all the children of each member to act as attorneys for the parent.
In the event of a member being made bankrupt,
they can no longer act as trustee or be a director
of a trustee company of an SMSF.
If individuals act as trustees the choices are:
Roll over both members' balances to a public offer or industry fund.
Roll over the bankrupt member's balance to another fund and either appoint a new individual trustee or a company to take over the trusteeship.
Convert the fund to a small APRA fund.
If a company is already acting as trustee for the super fund, the bankrupt member's balance can be rolled into another super fund, or the fund can be converted into a small APRA fund.
In some cases this may be necessary when it will be difficult to sell the investments of the SMSF, such as when a business property is owned.
The fees charged by trustees of small APRA funds vary greatly. It is important therefore to establish what these fees will be first.
Max Newnham's book, Funding Your Retirement: A survival Guide, is available in bookstores and as an e-book.