SMSF member enters permanent residential aged care

SMSF member enters permanent residential aged care

by Christine Hopper

When an SMSF member enters permanent residential aged care he is unlikely to have the ongoing mental capacity and physical strength to continue managing his financial affairs. Once mental capacity is lost his Attorney, or Court appointed Administrator, would become responsible for his financial affairs. If the aged care entrant has an SMSF then the Attorney or Administrator would become a trustee of the SMSF on behalf of the aged care entrant.

Immediate responsibilities of an Attorney for an SMSF member enters permanent residential aged care

Becoming a trustee of an SMSF is an important and serious undertaking that carries certain duties and responsibilities. The trustee’s primary concern being the management of the fund for the benefit of members for their retirement.

All new trustees (or directors of a corporate trustee) of a self-managed super fund (SMSF), must complete and sign a Trustee declaration (NAT 71089) to show they understand their duties and responsibilities under superannuation laws.

You must also complete the declaration if you are a legal personal representative, the Attorney or Administrator, who has been appointed as trustee (or director of a corporate trustee) on behalf of an SMSF member who is in permanent residential aged care.

You must complete and sign the Trustee declaration (NAT 71089), within 21 days of becoming a trustee of an SMSF. The declaration aims to ensure that new SMSF trustees (or directors of corporate trustees) understand their obligations and responsibilities.

Read more about the Trustee declaration

Ongoing responsibilities and duties of an Attorney for an SMSF member enters permanent residential aged care

As trustee for an SMSF, you’re in charge – you make the investment decisions for the self-managed superannuation fund and you are responsible for complying with the law.

Who makes the decisions for a SMSF?

The trustees are responsible for ensuring their fund is properly managed and complies with all rules (including superannuation laws and the fund trust deed). These rules apply to the SMSF member or his Attorney or Administrator on his behalf, in their capacity as a trustee of the fund.

All trustees are equally responsible for managing the self-managed superannuation fund and making sure it complies with the law. This is the case even if: one trustee (or director) is more actively involved in the day-to-day running of the fund than the others, or you use a professional to do certain tasks on your behalf such as, an accountant, lawyer, investment advisor, superannuation fund administrator or tax agent.

All trustees are responsible and accountable for running the fund and making decisions. Each trustee must always put his obligations and responsibilities as a trustee of the fund before his wishes as a member. Whenever a conflict occurs between his wishes as a member and his legal responsibilities as a trustee, he must comply with his trustee obligations.

The trustee will also need to make important decisions that may affect the retirement savings of fund members.

What are the main duties of an SMSF Trustee?

The trustee must also ensure the self-managed superannuation fund’s assets are held in trust and invested on behalf of the members.

The trustee must ensure that proper records and accounts of its financial activities are maintained. An audit of the SMSF accounts must be undertaken each year.

The trustees of an SMSF must also file an annual return to the ATO regarding the SMSF.

Managing an SMSF could be a part-time job, but it cannot just be a ‘spare time’ job.

The Australian Taxation Office offers lots of material to guide SMSF trustees. You can read plenty re SMSF at the  ATO

If you are still unsure about managing an SMSF then seek professional advice promptly.

The aged care entrant would have had his SMSF audited each year so you could contact the team who arranged the last audit for help in finding a suitable professional.

Hint: Do not defer or delay undertaking your new responsibilities as Attorney, or Administrator, when an SMSF member enters permanent residential aged care. You must sign up as an SMSF trustee within three weeks of your appointment.

Moving the superannuation entitlements of an SMSF member enters permanent residential aged care

If long-term you do not want the additional workload of being the trustee of an SMSF then you could arrange for the aged care resident to cease membership of the SMSF.

Where the SMSF has other members than aged care entrant, the Attorney, or Administrator, could arrange for the transfer the aged care resident’s superannuation entitlements to another superannuation fund or have his entitlement paid as a lump sum. The remaining members of the SMSF could continue to operate the SMSF and ensure compliance with all the rules regarding an SMSF.

Where the aged care entrant is the sole member of the SMSF and/or the main person actually running the SMSF, then removal of the aged care resident from the SMSF could require the SMSF to be wound up and all entitlements paid out.
The winding up of an SMSF is a serious and complex matter.

Before you could close the SMSF for a member in permanent residential aged care, you must arrange for the transfer the aged care resident’s superannuation entitlements to another superannuation fund or pay out the entitlement as a lump sum.

A retired SMSF member might be receiving an account based pension from his SMSF.
To retain the income tax and social security advantages of an account based pension, the SMSF must arrange for the timing and amounts of payments from an account based pension to be strictly in accordance with its rules. Attention to the details of payment dates and amounts is essential.

Transferring the aged care entrant’s superannuation to another superannuation fund could be considered as starting a new account based pension and thus change the detailed structure of the account based pension.

Please be aware that a change in the Social Security treatment of account based pensions became effective in January 2015 for new contracts and new applications to Centrelink.

A new account based contract could be commenced by your cashing out an account based pension in one superannuation fund and using the proceeds to purchase a new account based pension in another superannuation fund. Thus transferring an account based pension on or after 1 January 2015 could impact on the aged care resident’s ‘income’ for Centrelink, DVA and aged care ‘income tested fee’ or ‘means tested amount’ purposes.

You are advised to seek professional advice about the impact on aged care fees and means tested Pension benefits before dealing with any account based pension for an aged care resident.

Christine at Financial Care Services could guide your thinking about the impact on aged care fees and Age Pensions of changing the account based pension from the SMSF to another superannuation fund or paying it as a lump sum benefit.

Call 03 9808 0338 to make an appointment for professional advice with Christine at Financial Care Services 

Once you have decided to close the SMSF then you must follow correct procedures and continue reporting to the ATO. You must not ignore the SMSF. Professional help is available to assist you with the administration of the SMSF; but the Attorney, or Administrator, cannot delegate the decision making.

The ATO is concerned that you follow correct procedures for finally closing and winding up an SMSF. Read more about winding up an SMSF  

Disclaimer: The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before investing any money or moving in to any retirement village, lifestyle community or aged care facility. Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations.
Financial Care Services does not provide taxation advice or superannuation administration services. You should seek SMSF audit services from an appropriately registered auditor.
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To make an appointment for professional advice, call Financial Care Services 03 9808 0338