The risks of acting under an Enduring Power of Attorney

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What is an Enduring Power of Attorney?

An Enduring Power of Attorney (EPOA) is a document that appoints a person (the attorney) to make legal and financial decisions on behalf of the principal, once the principal is unable to manage their affairs.

The principal can appoint more than one attorney and these appointment can be made either:

  • Jointly, where all attorneys must agree, or
  • Severally, where each party has the right to make decisions on the principal’s behalf independently of each other

Once a medical professional decides that the principal no longer has the mental capacity to make legal and financial decisions the EPOA will come into force. At this point the attorney will step in to make these decisions on behalf of the principal. If no EPOA has been appointed then one would need to apply to the NCAT Guardianship Tribunal to have a financial manager appointed.

What tasks can be performed by an attorney?

Once the EPOA has been activated an attorney is able to perform the following functions on behalf of the principal:

  • Access bank accounts and pay expenses on behalf or the principal
  • Make investment decisions on behalf of the principal
  • Buy or sell land (providing the EPOA is registered with NSW Land Registry Services)
  • Maintaining and improving any assets that may be owned by the principal
    The Attorney will be restricted from performing the following actions unless they are specifically authorised within the EPOA
  • Performing any action that is not in the best interest of the principal
  • Giving away any assets owned by the principal
  • Performing any transaction that results in a conflict of interests between the attorney and the principal

What risks can an attorney face?

Appointment as attorney under an EPOA represents a great responsibility. Once the EPOA is activated the attorney must act in the best interests of the principal. However the attorney will also be responsible to all those who rely on the principal whilst he survives in addition to those who benefit under the principal’s Will.

The interest of these parties can at times be at odds with the best interests of the principal and as such the actions of an attorney are often subject to close scrutiny and dispute.

An attorney can be left to manage financial matters such as business interests, share portfolios and other investments on behalf of the principal until they pass away. The timespan between the principal losing mental capacity and passing away can, in some cases, be quite lengthy. Therefore the attorney can become responsible for vast increases or decreases of the principal’s assets, depending on their investment and financial decisions.
If it has been found that an attorney has intentionally mismanaged funds then they can be held personally liable, by the other interested parties.
If an dispute arises between an interested party and the attorney the interested party can apply to the Court or Guardianship Division of the NSW Civil and Administrative Tribunal (NCAT) for a review of the actions and decisions of the attorney.

Once the principal has suffered a loss of capacity, the attorney will be unable to renounce his appointment without an order from the court or NCAT.

Prior to the sale of any property on behalf of the principal, the attorney should be familiar with the provisions of the Will in order to prevent any ademption (reclaiming of gifts provided under a will) occurring once the principal passes.

Before accepting the position of attorney the following must be carefully considered:

  • Does the attorney have the time and skills to properly manage the principal’s financial and legal affairs?
  • If there is more than one attorney,
    • do you get along and will you be able to agree with them?
    • Is the appointment joint or several?
    • Are there any provisions to resolve disputes between jointly appointed attorneys ?
  • Does the EPOA state any specific requests, conditions or limitations to be imposed on the attorney?
  • How well does the attorney know the family and friends of the principal and what is the likelihood of a dispute?

How can an attorney be protected?

Attorneys may be placed in a difficult position when acting in the principal’s best interest. If an attorney has a genuine concern regarding the management the legal and financial affairs of the principal the attorney is entitled to seek legal advice on the issue and have these legal fees paid for from the principal’s funds.

In addition to this under s 38 of the NSW Trustee and Guardian Act 2009 (NSW) an attorney can apply to the Court or NCAT for direction “on any matter relating to the scope of the attorney’s appointment or the exercise of any function by the attorney”.

Attorneys play a necessary and important role in the latter stages of many peoples lives. Whilst the position is taken on voluntarily it can potentially expose the attorney to many risks they had not considered. Being informed about conditions of the EPOA, the wishes of the principal and their family situation are important first steps to take before acceptance. Obtaining independent legal advice early on in the process, can assist the attorney in making the right decisions for the benefit of the principal and minimise the risk of personal liability. The estate specialists at Solari and Stock Lawyers can guide you through the process of becoming an attorney and provide you with advice as to how to stay protected during this process.