Most people have heard of a Power of Attorney but most do not fully appreciate the extent of its power, the benefits it delivers or the types of powers of attorney that exist.
A Power of Attorney is a convenient and sound legal method of allowing someone to handle your affairs. It is often used if you are planning to go overseas, taking an extended holiday, suffer from poor health, have an accident or reach a stage in your life when you need greater assistance managing your affairs.
In this article we examine why appointing a Power of Attorney is so strongly recommended by lawyers and explain the difference between a general Power of Attorney and an Enduring Power of Attorney.
Selecting a person to act in your place
The appointment of your attorney enables that person (or people) to act in your place, and do the things you would normally do yourself. Such as signing documents, paying the bills and doing the banking. The person you choose, your Attorney, has the right to stand in your shoes when you wish them to look after your affairs. In reality they can enter into agreements in your name and on your behalf.
Therefore as a result of the power of the appointment it is critical that you select the right person to act in that capacity. The person does not have to be a lawyer. In fact it is important for the person to know you well and for you to respect them. It is often a trusted family member but whoever it is must be over 18.
The difference between a general and an enduring power of attorney
Not all powers of attorney are the same.
A general power of attorney is a legal document that gives the attorney the authority to make decisions about financial and legal matters on behalf of the person who appoints them. This power lasts only for as long as the person who appoints them has mental capacity. The general power ceases to operate if the donor loses capacity to make decisions. A general power of attorney is often used as a tool of convenience. For example, a person might appoint a general power of attorney to look after their financial and legal affairs in Australia while they travel overseas.
An enduring power of attorney is similar to a general power of attorney except that the powers continue, or endure, in the event the donor loses mental capacity.
In some jurisdictions, such as Victoria, ACT and Queensland, an enduring power of attorney may also be used to authorise medical and health decisions.
An Enduring Power of Attorney, unlike the General Power of Attorney, must be explained to you by a prescribed witness, that is, a lawyer.
It is important to be aware that an Enduring Power of Attorney becomes void when you die.
What happens if you lose capacity without having a Power of Attorney?
This is never properly considered. Imagine you have become very ill and could not even sign your name on your joint bank account where both signatures are required?
If you do not have an Enduring Power of Attorney and develop a mental incapacity you are therefore unable to manage your financial affairs. It is too late then to have a lawyer prepare such a document as you do not have capacity to sign it. The problem is then that no person automatically has the right to manage your assets. Not even if they are your husband or wife.
This therefore has a colossal effect on all the financial decision making thereafter with your bank accounts, your jointly owned home, shares or other jointly owned assets or liabilities.
To have decisions made in these circumstances would then involve an application to the NSW Civil and Administrative Tribunal (formerly the Guardianship Tribunal) if you are in New South Wales, or the ACT Civil and Administrative Tribunal (ACAT) if you are in the Australian Capital Territory.
The applicant, usually a family member, would apply to become your financial manager. However this is subject to that person being deemed fit (as in ‘fit and proper’) by the Tribunal. Failing this finding of being ‘fit’, the Tribunal may appoint the Public Trustee and Guardian to manage your affairs.
Imagine your spouse needing to consult with a government department to deal with your ongoing financial decision making remembering that this would continue until your death.
When does the attorney’s power begin?
You may nominate when your attorney’s power is to begin. In the Australian Capital Territory, an Enduring Power of Attorney involving property matters can come into effect immediately. All other matters, including personal care, medical, and medical research matters can only come into effect if you become a person lacking decision making capacity.
It is important to note that even if you give your attorney power immediately, you may also continue to make decisions yourself while you are able to do so. By providing a power of attorney you do not restrict or give up the right to make financial decisions as you do today.
Today powers of attorney are used as a precautionary step by sensible adults rather than as a stop gap measure for an overseas trip. Today all professional groups such as accountants and financial planners, along with lawyers all strongly recommend that their clients of all ages and walks of life, grant Power of Attorney so their assets are not locked up if a person lacks what is called legal capacity to sign documents.
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