The effect of the incapacity of trustees or members of an SMSF is not just an issue for the SMSF and their continuing compliance status. It is a major challenge and a growing area of risk for professional advisers more generally.

A developing area of law impacting the professional adviser sector is ‘capacity negligence’. Here advisers are being challenged and potentially held liable for not assessing their client’s capacity competently or not being attuned to the insidious presence of undue influence from other members of the family. This can lead to them effectively facilitating elder abuse.

Advisers may have had a client for many years without difficulties. However an ageing client can create issues where the adviser is ill skilled to identify the issues and appreciate and where they are confronted by an ethical challenge. They may even have to consider their duty or responsibility to ‘whistle blow’ where they may become aware of illicit actions by other parties such as family members in manipulating an SMSF particularly through the auspices of an EPOA.

We will briefly explore the law of incapacity and its effect on SMSF’s, financial advisers, accountants and ‘other professionals’ and then drill down to the dangers of acting as an adviser without knowledge of the law or wilful avoidance of it. We will examine some riveting examples and explore some overseas development such as in the US.