Family business, trusts and superannuation - what is the role of an Enduring Power of Attorney?

Introduction

An Enduring Power of Attorney is an essential document which appoints your chosen person to make financial and personal decisions on your behalf once you have lost decision-making capacity. The person you appoint is called your ‘attorney’.

An Enduring Power of Attorney on its own may not allow your attorney to make decisions regarding your family business, family trust or superannuation. For example:

• If you are in a Director in a company, your attorney cannot automatically step into your role as Director if you lose decision-making capacity;
• If you are the Trustee or Appointor of a family trust, your attorney cannot automatically step into those roles if you lose decision-making capacity;
• If you hold superannuation (whether through a public fund or through an SMSF), your attorney may be restricted from making decisions on your behalf regarding your superannuation.

Additional documents, or variations to existing documents, may be required to ensure your attorney has comprehensive powers to manage all of your financial affairs if you lose decision-making capacity. Each particular type of asset is discussed in more detail below:

Companies

If you hold shares in a privately owned company, then those shares are your personal property. Your attorney can (subject to the wording of the company constitution) make decisions in relation to those shares if you lose decision-making capacity. Such decisions could include the sale or transfer of the shares, or voting at company meetings.

However, if you hold the position of a Director in your family company, then your attorney cannot automatically act as the Director in your place if you lose decision-making capacity.

If you hold the majority of the shares in the company, then your attorney could, through the voting rights attached those shares, remove you as the Director and appoint themselves, or another person, as a replacement Director (provided this is allowed by the company constitution).

If you are the sole Director and shareholder in the company, then your attorney is authorised to appoint a replacement Director pursuant to s201F of the Corporations Act 2001 (Cth) (provided this is also allowed by the company constitution).

Alternatively, if you would like more certainty as to who will act as the Director in your place if you lose decision-making capacity, you (along with any other Directors in the company) may execute a Deed of Delegation.  This is a separate document to an Enduring Power of Attorney. The Deed of Delegation allows for a Director to appoint another person (or persons) to act in their place in circumstances such as where a Director is overseas or has lost decision-making capacity.  

Family Trusts

Each family trust will have a Trust Deed, which is a document setting out the rules of the trust, and the positions of control in the trust.  Generally speaking, the two most important positions in the trust are the Trustee (who is responsible for the day-to-day management of the trust), and the Appointor (who has the power to appoint and remove the Trustee).

If you hold the position of Trustee and/or Appointor, your attorney cannot automatically step into these roles if you lose decision-making capacity, unless this is allowed by the Trust Deed.

It is therefore very important that the Trust Deed allows your attorney to act if you lose decision-making capacity (or allows an alternate mechanism for the appointment of a replacement Trustee or Appointor). The Trust Deed may need to be amended if it does not have such a provision. This will ensure there will be clarity as to who can act if the Trustee or Appointor loses decision-making capacity.

If the Trustee of your family trust is a company, and you are a Director in that company, then you should ensure that there is a mechanism in place for a replacement Director to be appointed, as outlined above.  

Superannuation

It is important that you appoint a person to have the power to make decisions regarding your superannuation, if you lose decision-making capacity. For example, a Binding Death Benefit Nomination (a direction to the superannuation fund regarding who will receive your superannuation on your death) will often lapse after three years. It is therefore important to appoint a person with the power to continue to renew the Binding Death Benefit Nomination, if you lose decision-making capacity.

Your attorney may not automatically have the power to make decisions regarding your superannuation.

This is an evolving area of the law, and there have been a number of conflicting court decisions across different Australian states in recent years. Until the issue is addressed in Victoria through legislation or the Courts, it is recommended that your Enduring Power of Attorney specifically states that your attorney may make decisions regarding your superannuation on your behalf (provided this is what you want).

If you are the trustee of your SMSF, or a Director in the corporate trustee of the SMSF, then superannuation legislation states that your attorney can step into these roles if you lose decision-making capacity (provided this is also allowed by the SMSF Trust Deed)

Conclusion

An Enduring Power of Attorney is an important first step to ensure that you appoint your chosen person to manage your financial and personal affairs if you lose decision-making capacity. However, depending on your assets, additional legal advice and documents may be required to ensure that your chosen attorney has comprehensive powers to manage all of your financial affairs, including your superannuation, family business, and family trust.

How Sharrock Pitman Legal can assist you?

Our team of Accredited Specialists (Wills & Estates) has been advising business owners and individuals on succession planning and estate matters for over 50 years.

If you would like advice in relation to your situation or to plan for the future management of your business or financial assets, please do not hesitate to speak to our Accredited Specialists in Wills & Estates Law. Get in touch with us on 1300 205 506 or email our Wills & Estates team directly.

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The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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