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 is incapacitated.
The power may be limited in scope in terms of what functions the attorney may perform. 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. This is known as a Limited Power of Attorney.
A General Power of Attorney provides broader scope for the attorney to do anything the principal is lawfully able to do.
A Power of Attorney, whether limited or general, ceases to operate if the principal becomes mentally incapacitated. This is often not desirable as many people will only want a Power of Attorney to take affect if they are incapacitated. In this case an Enduring Power of Attorney can be made which will continue to be effective if the principal loses mental capacity, but cannot be revoked by the principal after losing capacity.
In all cases, 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?
Any person over 18 years, capable of understanding his or her role as an attorney, may be appointed. Given the position of trust that the attorney will hold, principals should carefully consider who they should 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, trusted friend or professional.
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 must 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 the best interests of the principal and avoid a conflict of interest. The attorney should maintain separate records and accounts on the principal’s behalf.
Generally, the legislation governing Power of Attorneys prohibits the making of a gift or benefit to the attorney or a third party. The legislation however can be overridden to authorise modest gifts to third parties or to confer benefits on an attorney if this is expressed in the Power of Attorney.
Generally, each act should be authorised by the principal, noting that this will not be possible if the Power of Attorney is enduring and the principal lacks capacity.
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 intrastate, your lawyer can check the relevant rules.
Remember, a Power of Attorney does not allow a person to make health and lifestyle decisions on your behalf. An Appointment of Enduring Guardian is the appropriate legal document for this function.
Summary
A carefully drafted Power of Attorney enables you to appoint one or more persons you trust to handle your legal and financial 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 (02) 9708 2222 or email [email protected].