Advice Market Blog
What is a Power of Attorney and Enduring Power of Attorney and what are their potential uses and misuses?
July 21, 2016
As part of your estate planning for the future, it’s important to consider drawing up a Power of Attorney or an Enduring Power of Attorney. Many decision-making disabilities are caused by illness, accident or trauma. There is no way of knowing if or when any of us will lose the capacity to make decisions for ourselves, or be physically unable to attend to property, financial and health matters. Alternatively, we may be going away for long periods of time and need someone to attend to our financial matters while we are away. By having either a Power of Attorney or Enduring Power of Attorney in place, you will be prepared for these eventualities.
What is a Power of Attorney?
In general, a Power of Attorney is a legal document that you can use to appoint someone you trust to act on your behalf in making decisions for you if you are incapable of making them for yourself, or you are away. There are two types:
- An ordinary Power of Attorney; and
- An Enduring Power of Attorney.
Powers of Attorney vary depending on which state or territory of Australia you are in. In some states, they only give the attorney financial and property decision making powers whereas in other states they may include broader guardianship powers relating to your health and personal arrangements.
Ordinary Power of Attorney
An ordinary Power of Attorney is usually drawn up to operate for a specific period of time, for example while you are overseas or in hospital, and allows the attorney to make financial or property decisions on your behalf while you are unable to do so. For example, you may need to sell your house while you are away or transfer large amounts of money to someone which can only be done in person at a bank branch.
The ordinary Power of Attorney ceases to operate if the person who made it loses legal capacity. That is, if you become ill or disabled and can no longer make decisions for yourself, this Power of Attorney will become invalid and there will be nobody with legal authority to manage or make decisions about your property and finances. Your family may have difficulty accessing your bank account to pay your bills. If your home needs to be sold (for example, to pay for you to move into residential aged care) only someone with your Power of Attorney will be able to do this.
A relative or another person may need to apply to the relevant state tribunal or the Supreme Court to have a financial manager appointed for you. This may not be the person you would have chosen.
Enduring Power of Attorney
An Enduring Power of Attorney differs significantly from an ordinary Power of Attorney, as it continues to operate after you lose legal capacity.
By completing an Enduring Power of Attorney you can authorise a person (or agency), who you know and trust, to make property and financial decisions for you in your best interests, in the event that you lose capacity or are no longer physically able to manage your finances. In some states and territories, you can also use an Enduring Power of Attorney to authorise your attorney to make personal decisions for you. This would include matters such as where you will live, who you will live with and your recreational activities as well as some health related decisions such as treatment options.
An Enduring Power of Attorney ends on the death of the donor. At that point the provisions of the person’s Will take over.
Uses and misuses of a Power of Attorney
Giving someone else the authority to manage your finances who will continue in this role if you ever lose capacity is a very serious decision. The choice of attorney is therefore absolutely critical and you must ensure the person is someone you know well and can trust to look after your best interests.
Sometimes, even with the best plans an attorney may act inappropriately. This may be a simple mistake, for example forgetting to pay a bill, or sometimes they may not fully understand their role, for example gifting money to your grandchildren when there are limited funds to do so.
Unfortunately there have also been many cases of abuse of Powers of Attorney, especially in regards to the elderly. The most common example is where the attorney takes money from the bank account of the donor for themselves, or uses their credit card without the donor knowing. However there have also been serious cases where attorneys have transferred the donor’s house into their own name or misappropriated the donor’s life savings.
Get the right advice
If you are considering preparing a Power of Attorney, it is important to obtain legal advice from a professional as to the format you should use and the terms you should include. This advice will protect you from potential misuse of your Power of Attorney down the track and will also ensure that your affairs are taken care of in the various situations where you aren’t able to look after them yourself.
The information provided is intended as a guide only and does not take into consideration your personal situation, needs and objectives and should not be considered as advice of any nature.