This year’s annual SMSF Professionals’ Association (SPAA) conference series provided a terrific opportunity for discussion and debate and it was interesting to hear the delegates’ views on where the opportunities lie to improve the industry and its operations.

Key topics discussed ranged from in-house asset rules and related party transactions through to the ATO’s new penalty regime.

A thought provoking session that captured considerable interest – and created a buzz on the conference floor – addressed the little discussed but important topic of mental incapacity and personal wealth management. Presented by Caroline Harley, Associate with Townsend Business and Corporate Lawyers, the paper ‘Planning for a Trustee’s Mental Incapacity’ highlighted the fact that many people – and by extension their accountants and financial advisors – are ill prepared for loss of mental capacity.

As Caroline points out, the warning signs of mental incapacity may be difficult to read, or there may be no warning signs at all. Recent high profile examples of loss of capacity include formula one driver Michael Schumacher, who fell into a coma as the result of a skiing accident and actress Catherine Zeta-Jones, who underwent treatment for bipolar disorder.

There is no crystal ball that can predict who among us is likely to develop conditions like dementia or Alzheimer’s disease, suffer a stroke or be injured in an accident. However, should any one of these scenarios unfold, a person may well lose the capacity to manage their financial affairs and property. What then?

If there is no plan in place, this can open up a minefield of complicated, costly, stressful and time consuming legal proceedings to remove the person as a trustee to a SMSF, other trusts and directorships and replace them with a legal personal representative. Further, it places accountants and financial advisors at risk of a negligence claim.

According to Caroline, the best defence for the individual – and their accountant or financial advisor – is to plan ahead for possibility of mental incapacity.

She recommends that all accountants and financial advisors check the Trust Deeds and constitutions of SMSFs, proactively discuss the issue of mental incapacity with their clients and make amendments and changes to funds as necessary. They should also be aware that the legal definition of mental incapacity differs in Australia’s various states and territories.

Another key strategy is for accountants and financial advisors to ensure all clients have a valid enduring power of attorney, as well as a binding death nomination in place and up to date.

Making an enduring power of attorney is a practical step a person can take while they still have legal and mental capacity. As you will be aware, this legal document appoints one or more persons (the attorney/s) to act on behalf of another person (the principal) in areas of financial management and property. This means that the principal’s essential financial matters can be looked after by their appointed representative/s should they lose mental capacity, either permanently or temporarily. A doctor’s certificate is usually required to establish the mental incapacity of the principal.

While planning ahead for mental incapacity requires a concerted effort on the part of an accountant or advisor, inaction can prove a nightmare for all involved. The process of putting an appropriate plan in place can be made easier when a person’s financial affairs are effectively managed through a comprehensive wealth management solution.

Typically, managing an individual’s personal wealth involves much more than simply handling the accumulation and pension phases of their SMSF. Most clients will have other types of investments and may require other trust and estate services.

Delivered by Bravura Solutions, Garradin is a comprehensive private wealth and portfolio administration platform that supports the full personal wealth and estate management process, including end-to-end SMSF administration. To find out more about Garradin click here.

About the author

David Barrett

Principal Consultant

David Barrett is a Principal Consultant for Bravura Solutions based in our Sydney office. With more than 12 years in the banking, investment, insurance and IT world, David is our resident SMSF guru. He also has many years of experience as a financial planner, both in private practice and also within the banking sector. David’s responsibilities include system design, scoping and implementation for Garradin. He works closely with our private wealth clients to develop solutions that increase their operational efficiency and improve their productivity.

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