There are many aspects to good estate and financial plans and an up-to-date Will is an essential element. However, there is a document that is arguably even more important – an enduring power of attorney. If your client doesn’t have a Will, there are state-based laws that deal with the distribution of assets on death. However, there are no such laws about how to deal with their financial affairs if they lose mental capacity.
An enduring power of attorney (EPoA) is a legal document that allows your client to appoint a person (the attorney) to make decisions about their property and financial affairs. An enduring power of attorney continues after your client loses mental capacity and allows the attorney to manage their affairs for them.
If your client loses mental capacity, without an enduring power of attorney in place, there may be no one with the legal authority to manage their financial affairs. The client’s family or advisers would then need to apply to the relevant authority in their state or territory to have someone appointed. This can be a difficult process.
If your client loses their mental capacity and they don’t have an enduring power of attorney then their financial affairs can become complex. Utility and other types of bills may not be paid leading to debt recovery action which could be potentially expensive and stressful. Your client could live for some time in an aged care facility while not having the mental capacity to manage their finances. If they own a home but have no support from family members then their home could become dilapidated quite quickly in the absence of people to maintain it.
If they don’t have an enduring power of attorney, your client can be stuck in a no-man’s land where they can’t manage their affairs but their legal personal representative, who could do, is unable to step in and organise your client’s financial affairs until they die.
An attorney can have an enormous power over your client’s affairs, so your client should choose an attorney who is trusted and who will manage their finances in a responsible manner. If your client’s financial affairs are complex, they should appoint an attorney who can manage complex affairs and is available and willing to do so. Your client may wish to appoint a family member or a close friend as their attorney. They can also appoint a trustee company.
Your client can appoint more than one attorney. When appointing more than one attorney, they should choose people who can co-operate with each other and work together in the best interests of your client. Your client can appoint attorneys to act:
If your client’s attorneys can act separately, the enduring power of attorney will continue even when one of the attorneys can no longer act. However, if your client appoints attorneys who must act jointly, the death or incapacity of one of the attorneys may automatically end the enduring power of attorney (depending on the jurisdiction and the document itself).
If your client’s first choice is unable or unwilling to act, they should also consider appointing a substitute attorney. For example, if your client appoints their partner as their attorney and they are subsequently both involved in an accident, their partner may be unable to act for your client due to their own incapacity. If they have not appointed a substitute, then they will have no authorised attorney.
Your client can give their attorney the power to make any decision about their finances or property which they could make themselves. These broad and general powers include paying bills, selling a property, making investments, accessing cash and buying or selling shares.
Your client can control the powers they give to the attorney by placing limits or conditions in the enduring power of attorney. For example, they can give the attorney authority to pay bills but not to sell property. If your client wishes to include limits or conditions in their enduring power of attorney, they should seek expert advice about the best way to do this.
If your client is a member, and therefore trustee (or director of a corporate trustee), of a self-managed super fund, their attorney can be appointed as a trustee of the fund in your client’s place in the event of their incapacity (depending on the governing rules of the fund). As a result, your client’s fund can remain a complying superannuation fund and retain the significant taxation benefits available to a complying fund.
In most jurisdictions, an enduring power of attorney cannot be used to make medical or lifestyle decisions. If your client wants to appoint someone to make medical or lifestyle decisions on their behalf, each state and territory has a procedure for making such an appointment.
An adult can make an enduring power of attorney if they can understand the nature and effect of the power of attorney and the range of decisions which their attorney is authorised to make. If your client has a cognitive disability, they may still have the capacity to make an enduring power of attorney, but it will depend on their level of understanding about what a power of attorney is. If there is any doubt about whether your client has the capacity to make an enduring power of attorney, an appropriately qualified medical practitioner should assess their understanding beforehand.
An attorney is in an important position of trust. The attorney has a responsibility to always act only in your client’s best interests. The attorney must:
Your client can revoke their enduring power of attorney at any time, provided they have the mental capacity to understand what they are doing at the time they revoke it. It depends on the jurisdiction, but generally the power of attorney can be revoked by notifying the attorney either verbally or in writing that it has been revoked.
It is clearer for everyone if it is revoked in writing, especially if it is registered at your state or territory Land Titles Office. If your client does not notify the attorney about the revocation, the attorney can keep dealing with their finances and property.
After revocation, your client should destroy the original and any copies of the enduring power of attorney.
An enduring power of attorney ends:
The enduring power of attorney may also end for more complex legal reasons, such as bankruptcy. You should seek legal advice about these matters.
At AET, we can provide valuable assistance with enduring power of attorney preparation, incorporating safeguard provisions for two or more attorneys to be appointed. Those appointed as enduring power of attorneys can be bound to act only in accordance with defined terms and arrangements.
For more information on enduring powers of attorney, please call one of our estate planning lawyers on 1800 882 218.