How to make a plan in case of incapacity

In order to plan for incapacity it is important to have a well drafted Enduring Power of Attorney (“EPA”).  Note that once capacity has been lost it is not possible to prepare an EPA and an application would need to be made to VCAT to obtain orders for appointment of a Guardian and/or Administrator.  If an EPA has been prepared (rather than a General Power of Attorney) it will continue to operate if the principal loses capacity.

When a client holds a controlling role in a private company, trust or self-managed superannuation fund (SMSF) it is important to review of the relevant controlling documents of these entities, such as constitutions, shareholder agreements and trust and SMSF deeds as the documents may already provide for contingencies on loss of capacity including how and if Attorneys can act.

It is important to understand the scope of an EPA for non-personal assets.  Consider the following:

Companies (including trustee companies):  An attorney cant directly take on the role of Director of a company however and EPA will allow an attorney to exercise shareholder rights, including appointment of officeholders.  Structural review of the company should be undertaken to determine the appropriate number and identity of officeholders.  In the context of discretionary family trusts with corporate trustees and where the attorney is a beneficiary of the trust this is an important consideration to allow appropriate checks over the power of the trustee.

Trusts (including SMSF’s): An EPA does not operate to give the Attorney the power to act as Trustee in the principal’s absence.  The trust deed may provide for replacement controllers due to incapacity.  If trust deed is silent, legislation will operate to replace trustees.  To avoid uncertainty prepare a Deed of Succession to appoint replacement trustees, appointors and guardians.

For SMSF’s (and superannuation funds generally) if the deed permits consideration should be given to whether to allow an Attorney the power to make or confirm a Binding Death Benefit Nomination.  For SMSF compliance purposes an Attorney can step in as trustee in the event incapacity.