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 to act on their behalf. The attorney can do anything the principal can lawfully do.
The matters that can be authorised under a Power of Attorney are specified in the document. They may range from a one-off transaction, such as signing a contract to buy property, to fully managing the principal’s financial and legal affairs. The person appointed is known as an attorney.
This article explains the different types of Powers of Attorney, the limitations that can be placed on an attorney’s functions, and emphasises the importance of having one in place.
When and Why Should I Make a Power of Attorney?
Generally, a Power of Attorney is prepared when:
- A person anticipates needing to sign documents or complete transactions while unavailable, for example when travelling.
- A person wants to ensure they have appointed someone they trust to manage their financial and legal affairs if they become physically or mentally incapacitated.
None of us knows what the future holds. In either case, a well-drafted Power of Attorney helps manage your legal and financial affairs when you cannot do so yourself.
A Power of Attorney cannot be granted if a person lacks mental capacity. This may result from an accident, illness, or medical conditions such as a head injury, stroke, Alzheimer’s, or dementia. It is important to plan your Power of Attorney while you are in a sound state of mind. This allows careful consideration of who to appoint and what functions they may perform on your behalf.
Types of Powers of Attorney
Powers of Attorney can be customised to suit the principal’s needs. They may include safeguards by restricting what the attorney can do or when the authority starts. For example, a Power of Attorney can be effective only if the principal becomes incapacitated.
The power may be limited to specific functions, such as selling or buying a property, or only for a defined period. This is known as a Limited Power of Attorney.
A General Power of Attorney allows the attorney to perform any action the principal can lawfully do.
A Power of Attorney, whether limited or general, ends if the principal becomes mentally incapacitated. To address this, an Enduring Power of Attorney continues to operate if the principal loses mental capacity. However, it cannot be revoked after capacity is lost.
In all cases, a Power of Attorney ends upon the principal’s death. After this, the deceased’s Will or legislation for an intestate estate applies.
Who Should Be Appointed as an Attorney?
Any person over 18 years, capable of understanding the role, may be appointed as an attorney. Given the trust involved, principals should carefully consider who they appoint.
Most appointments occur between spouses or partners with mutual trust. If the couple is ageing or in poor health, it may be preferable to appoint an adult child, relative, trusted friend, or professional.
The appointment should consider the skill and judgment required. Duties can range from simple bill payments to complex business or financial matters.
If appointing multiple attorneys, consider how well they will work together. Attorneys may act jointly and severally, meaning either or both may act on your behalf. Alternatively, a joint-only arrangement requires consensus for each transaction. Joint appointments may offer greater security depending on the principal’s circumstances.
If joint attorneys are appointed, the Power of Attorney must state whether a surviving attorney can continue if the other dies.
What Is the Role of the Attorney?
An attorney must always act in the principal’s best interests and avoid conflicts of interest. They should keep separate records and accounts on behalf of the principal.
Legislation usually prohibits gifts or benefits to the attorney or third parties. However, modest gifts or benefits may be authorised if the Power of Attorney expresses it.
Each act should be authorised by the principal, except when an enduring Power of Attorney applies and the principal lacks capacity.
Can a Power of Attorney Be Used in Different States and Territories?
Most Australian jurisdictions recognise Powers of Attorney from other regions if they are valid under the relevant law. If you expect to use your Power of Attorney in another jurisdiction, your lawyer can check the rules.
Note that a Power of Attorney does not allow someone to make health or lifestyle decisions. An Appointment of Enduring Guardian is required for this function.
Summary
A carefully drafted Power of Attorney allows you to appoint trusted persons to manage your legal and financial affairs, either for a limited period or indefinitely if unforeseen events occur.
Once a person loses mental capacity, it is too late to create a Power of Attorney. Even intermittent lack of capacity can cause complications and increase the risk of challenges. These are good reasons to put this document in place now.
If you or someone you know needs advice, please contact us on 02 6621 2481 or email [email protected].