The definition of an SMSF should be a straightforward concept, but a number of legal determinations and exceptions have clouded this picture, presenting potential issues for trustees.
In his presentation at the 2016 SMSF Association National Conference in February, Miller Super Solutions founder Tim Miller said trustees and their advisers needed to be aware of the impact the word ‘except’ had on the SMSF industry.
“The definition of an SMSF looks pretty simple: all members must be trustees, all trustees must be members,” Miller said.
“If the paragraph stopped there, it would be fine but then it says the word ‘except’.
“‘Except’ pops up a lot in law, and we need to be able to deal with those ‘except’ situations.”
Those situations were likely to happen at some stage in the SMSF life cycle, so it was imperative trustees and their advisers planned ahead for the likelihood of these events, he said.
In particular, special focus needed to be given to the concept of enduring power of attorney (EPOA), which was a common stumbling block in defining SMSF members and trustees, he said.
“The exception to that [SMSF member definition] rule is when it talks about other people who can become or act as a trustee in place of the member,” he said.
“This is where the definition adds its complexities, and this is where as we transition through life we have to take consideration of who those people are, and the key one I want to highlight here is the enduring power of attorney.”
He said it was useful to think of a trusteeship as a single concept because, regardless of how many members were in the fund, they had to come to a common decision to move the fund forward.
“You want people who can have an active discussion, but can come to an agreement, because otherwise what you have is a stagnant SMSF sitting there doing nothing,” he warned.