Powers of Attorney – be careful who you appoint

Power of Attorneys and Enduring Guardianships are important tools in managing your financial and lifestyle affairs. When you create the documents, you will be known as the Principal, and you will have an Attorney who manages your financial affairs, and a Guardian who manages your lifestyle affairs.    

You are able to appoint a least one Attorney and Guardian and depending on how the documents are worded, the appointment of an Attorney will either cease in the event that you lose capacity, or continue. The Guardian only has a power to decide in the event you do not have capacity to make that decision yourself.  It is preferable to ensure that your Attorneys can continue acting if you lose capacity as this is when it is most valuable and cost effective.  

What can my Attorney and Guardian do for me?

The starting point is the Powers of Attorney Act (NSW) 2003 (“the Act”). On a low level, an Attorney can do everything with your financial and legal that you can do, but they must do it for your benefit. This might include paying utility bills, accessing your super fund, speaking with Centrelink about your state entitlements, paying rent or mortgage, managing debts and even gifting money to family and friends if your Attorney is explicitly authorised to do that.

Your Guardian is a little different because they can only make decisions for you once you lose capacity, and the decisions they can make are guided by the contents of the Enduring Guardianship document. For example, you may want them to be able to turn off life support in certain situations, you may want religious or spiritual services at the end of your life, or you may have particular wishes around medication, treatment or where you receive it.

Who determines capacity and what does it mean?

Capacity is a fluid concept and is determined based on the decision required to be made at the time. For example, the level of capacity required to decide to get a hair cut is much lower than that required to consent to undertaking a risky surgical procedure. Just because you have lost capacity so you cannot make a decision in one respect, does not mean that you cannot make a decision on another question or that all future decision making should be removed from you.

How am I protected?

The actions and duties of Attorneys and Guardians are governed by the relevant laws, and they impose high standards of conduct on them. It is well established that Attorneys and Guardians owe the principal a fiduciary duty. A fiduciary duty is a legal duty to act in the best interests of another. This means that all actions taken and decisions made pursuant to the Power of Attorney or Enduring Guardianship must be in the interests of the principal and where there is a conflict between the interests of the two, the Attorney or Guardian must give priority to the interests of the principal over their own interests.

The Attorney should also keep reasonable accounts and records of your money and property. If an Attorney is paying your bills they should keep a record of what they are paying as they can be called upon to demonstrate what they have done with the money, as they have a duty to protect and preserve your assets.

What are the risks of abuse?

There is a risk of an Attorney committing financial abuse because they have access to your assets. One of the most common and significant forms of financial abuse is the unlawful acquisition of the principal’s assets and using the principal’s money for the Attorney’s personal use or gain. The biggest risk of abuse in relation to Guardians is the relocation of the principal from their own home to a care facility unnecessarily with the intention of accessing proceeds of sale of real estate.

What is a conflict of interest?

An Attorney must not gain a benefit from being an attorney and must keep their own money and property separate from that of the principal’s, unless expressly authorised by the Power of Attorney document to do so. For example, an attorney should not transfer the principal’s money into their own bank account to pay the principal’s bills. This can become a little difficult when adult children live at home. It is often the case that when adult children live at home, they ultimately become the carer for the parent(s) in exchange for free board and lodge, and this can be a cause of a conflict of interest between the Attorney’s interests and their duties under the Act. To overcome this, you must ensure that your Power of Attorney is appropriately drafted to manage this situation.

What happens if my Attorney or Guardian does something wrong?

The Act provides a very clear baseline in relation to the rights and obligations of Attorneys and Guardians. If an Attorney makes a transaction that is unauthorised, is in excess of their power, or creates a conflict of interest, either the principal or an interested third party should seek legal advice and/or speak to the NSW Civil and Administrative Tribunal (NCAT). If an Attorney has been found to have acted improperly, it may be the case that they are removed from office. This is the same if the Guardian has been found to have acted improperly.

What happens if my Attorney or Guardian dies, retires or is removed from their role?

When you prepare the Power of Attorney or Enduring Guardianship, you will be asked to nominate at least one person to be your Attorney and/or Guardian. However, thought should be had in the event that that person dies, becomes incapacitated, retires or is removed from office. Therefore, it is always going to be preferable to appoint substitute Attorneys and Guardians who will replace the original Attorney or Guardian should the need arise. If you do not have substitutes, and you have capacity, you can simply prepare a new document. But the situation is complicated if you do not have capacity; in this situation, an interested third party would need to seek an Order from NCAT.

Has this prompted you to think about your own Powers of Attorney? If you would like to discuss your legal arrangements please contact Solari and Stock Miranda on 8525 2700 or click here to request an appointment. Did you know you can start your Estate Planning online now and securely using our Settify online tool? If you would like to start your Estate Planning securely online now please follow this link Solari and Stock Estate Planning Assistant.

Article written by Rebecca Exley..
Photo by Annie Spratt on Unsplash