By Joel Curry
“In this world nothing can be said to be certain, except death and taxes.” – Benjamin Franklin.
Maybe he should have also said, “And that your SMSF client base will age.”
The vast majority of SMSFs that TriSuper audit are mum and dad funds with the average age well in excess of preservation age.
It’s a fact, sadly, that there will come a time when one or both members become ill or impaired and can’t carry out their duties as trustee. However there may be very valid taxation and estate planning reasons to keep their assets in the SMSF. The question becomes:
Can a member maintain their super in a SMSF without being a trustee?
In normal circumstances under Section 17A of the SIS Act every member of a SMSF must also be a trustee of the SMSF or, in the case of a corporate trustee, a director of the trustee company.
But there may be situations that arise whereby a member becomes ineligible or disqualified from being a trustee; or they just decide they no longer want the burden of the duties and obligations that arise.
In certain circumstances it is possible to appoint a legal personal representative (LPR) to act as a replacement trustee, thereby allowing the member to maintain their monies in the SMSF.
Disqualification of a trustee usually occurs where a person is found guilty of an offence of dishonest or fraudulent conduct, or becomes bankrupt. In this situation it is not possible to appoint a replacement trustee and the only real option is to roll out the member’s balance to a non-SMSF super fund.
However options are available where a member becomes ineligible as a result of legal disability (ie mental impairment) or if the member simply wishes to step back from the duties of being trustee.
In the event of legal disability the LPR (usually the appointed trustee/guardian of the person’s affairs, or the person holding an enduring power of attorney) can be appointed as replacement trustee or replacement director of the trustee company.
A member not under a disability can also grant an enduring power of attorney to another person – who then, as the LPR, can also be appointed as replacement trustee. This option is often used if a member is going overseas for an indefinite period of time (to avoid the SMSF becoming a non-resident fund).
The LPR can also already be a member of the Fund.
Practically how does this work?
If the member is not under mental impairment, they would resign as trustee/director and the LPR would be appointed as replacement trustee/director in the usual manner that applies to all new trustees of a SMSF.
What happens in the situation where a member suddenly becomes mentally impaired?
If an enduring power of attorney is already in place then the holder should be able to act to resign the member as trustee and appoint themselves as replacement.
Without an enduring power of attorney in place, the relevant state authority would need to appoint a trustee/guardian over the person’s affairs. The appointed guardian could then act to become the replacement trustee.
As always the rules of the Trust Deed are crucial. Most new deeds provide for a member to be removed if they become mentally impaired and allow for a trustee/guardian or a LPR to become a replacement trustee.
It is conceivable that the member could challenge whether they are “mentally impaired”.
Also, the Deed may not provide for replacement trustees.
As always, we recommend you seek individual advice as each situation comes with different facts and quirks.
If you would like help with any of these issues, please contact Joel Curry directly on
or 02 4961 2788