Most people over 18 years of age should consider having a Power of Attorney in place.
A Power of Attorney is a legal document made by a person (known as the principal) that authorises one or more others, on behalf of the principal, to do anything the principal can lawfully do.
The extent of matters that can be authorised under a Power of Attorney is specified in the document and may range from a one-off transaction, such as signing a contract to buy property, to completely managing the principal’s financial and legal affairs. The person appointed to do this is known as an attorney.
This article explains the different types of Powers of Attorney, the limitations that can be placed on the attorney’s functions and emphasises the importance of having such a document in place.
When and why should I make a Power of Attorney?
Generally, a Power of Attorney is prepared when:
- a person anticipates that they will need to sign documents, enter, or complete transactions when they will be unavailable to do so, for example when travelling; or
- a person wants to ensure that they have appointed somebody they trust to look after their financial and legal affairs if they become physically or mentally incapacitated.
None of us knows what the future holds and in either case, a well-drafted Power of Attorney will facilitate the management of your legal and financial affairs when you are unable to.
A Power of Attorney cannot be granted if a person lacks mental capacity. This could be the result of an accident or illness causing impairment such as a head injury, stroke, Alzheimer’s, dementia or other medical complications. Accordingly, it is important to plan your Power of Attorney now while you are in a good state of mind and can put thought into who you will appoint and what functions they may perform on your behalf.
Types of Powers of Attorney
Powers of Attorney can be drafted to suit the needs of the principal and to offer safeguards by placing restrictions on what the attorney can do and when the authority is to commence. For example, a Power of Attorney can be put in place now, but specify it is only effective if or when a certain event happens, such as if the principal travels overseas.
A General non-enduring Power of Attorney will enable the attorney to deal with financial and legal matters but will cease to operate if the principal becomes incapacitated. The power may be limited in terms of what functions the attorney may perform or may be broad encompassing all matters. The attorney may be directed only to carry out very specific functions, such as the selling or buying of a piece of real estate, or to act only for a defined period of time.
An Enduring Power of Attorney enables the attorney to deal with personal matters, financial and legal matters, or both, and continues to operate after the principal becomes incapacitated. Often, a reciprocal appointment is made between spouses enabling one to continue with the daily management of personal and financial affairs if the other is incapacitated. If the principal becomes incapacitated after the appointment is made the Enduring Power of Attorney cannot be revoked.
A Power of Attorney ends when the principal dies after which the provisions of the deceased’s Will (or the legislation governing an intestate estate) will take effect.
Who should be appointed as an attorney?
Apart from some exceptions, a person over 18 years, capable of understanding his or her role as an attorney, may be appointed. An attorney however cannot be a care worker, health or accommodation provider for the principal, or a bankrupt.
An attorney is disqualified from acting in a financial capacity if he / she has been convicted or found guilty of a dishonesty offence unless this is disclosed to the principal and included in the appointing document.
Given the position of trust that the attorney will hold, principals should carefully consider who they appoint as their attorney.
Most appointments are made between spouses or partners with reciprocal trust and who are familiar with their respective legal and financial affairs. If the couple are ageing and in poor health however, it may be preferable to appoint an adult child or children, relative or trusted friend.
The appointment should take account of the level of skill and judgment required to carry out the anticipated role of attorney. Each person’s family and financial circumstances differ and the duties required may range from the simple payment of regular bills, to more complex matters involving large pools of money and / or business transactions.
If appointing more than one attorney, you should consider how well these people are likely to work together in managing your affairs. Attorneys may act jointly and severally, meaning both or either of them may act on your behalf with respect to a function. Alternatively, a direction that requires attorneys to act jointly only, means that each attorney’s consensus for each transaction will be required. Whilst it may be more convenient to appoint attorneys jointly and severally, a joint appointment may offer greater security. Again, it will depend on the principal’s individual circumstances.
If joint attorneys are appointed, the Power of Attorney should stipulate if it is intended that a surviving joint attorney can continue to act if the other joint attorney dies.
What is the role of the Attorney?
An attorney must always act in in good faith, with due diligence and in the the best interests of the principal. When acting for an incapacitated principal, the attorney should wherever possible, encourage the principal to take part in the decision-making process and make decisions that will give effect to the principal’s wishes.
An attorney is generally prohibited from receiving remuneration, a gift or benefit unless expressly stated in the document.
The attorney should maintain separate records and accounts on the principal’s behalf.
Can a Power of Attorney be used in different States and Territories?
Most jurisdictions in Australia recognise and accept a power of attorney made in another jurisdiction provided it was validly given under the relevant legislation. If you anticipate that the Power of Attorney will need to be used in another jurisdiction, your lawyer can check the relevant rules.
Remember, if you would like to appoint a person such as your spouse, partner or adult child to deal with certain health and medical matters on your behalf if you are incapacitated, you will need to arrange an Enduring Power of Attorney (Medical Treatment).
A carefully-drafted Power of Attorney enables you to appoint one or more persons you trust to handle your affairs for a limited period in planned circumstances, or indefinitely should the unforeseen occur.
Once a person loses mental capacity, it is too late to make a Power of Attorney. Even if lack of mental capacity is only intermittent, there will be complications in obtaining sound instructions and a risk that the Power of Attorney may be challenged. All good reasons as to why you should consider putting this important document in place now.
If you or someone you know wants more information or needs help or advice, please contact us on 03 8346 4900 or email [email protected].