11th Oct 2013
A Quick overview of a Power of Attorney
A power of Attorney is a legal document that allows you (the “principal“) to nominate a person as your “Attorney“.
A power of Attorney is an important and powerful legal document. You should understand the implications of a Power of Attorney and get legal advice before granting anyone authority to act on your behalf.
It is important that you trust the person you are appointing as Attorney to make financial decisions on your behalf. Your Attorney must be over 18 years old and must not be bankrupt or insolvent. If your financial affairs are complicated, you should appoint an Attorney who has the skills to deal with complex financial arrangements.
You can have one or more Attorneys or substitute Attorneys if for instance one of your appointed Attorneys dies.
Your Attorney is empowered by you to act on your behalf.
If no restrictions are imposed in the document, you will have authorised your Attorney to manage all your legal and financial affairs, including buying and selling real estate, shares and other assets, operating your bank accounts and spending money on your behalf.
Any action by your Attorney will bind you at Law.
An Attorney cannot make decisions about your lifestyle or health.
Decisions about your lifestyle or health can only be made by a guardian, whether by a guardian appointed by you (such as your husband/wife/children or trusted friend) or a guardian appointed by the Guardianship Tribunal or the Supreme Court.
Attached to the document creating the Power of Attorney is a certificate which must be completed by a Lawyer acting for you, certifying that the effect of the power of Attorney was explained to you and that you appeared to understand the effect of the power of Attorney before you signed the document.
Before the Power of Attorney can commence to operate, your Attorney must sign the acceptance of the appointment which is attached to this legal document.
If you appoint more than one Attorney, you must indicate whether the Attorneys must act jointly and make decisions together, or can act separately.
Joint Attorneys ‘May’ act separately and independently of the other joint Attorney.
Attorneys who are appointed jointly and separately are able to act and make decisions independently of each other.
Joint Attorneys must act by ‘Majority decision’
Alternatively you can specify that a simple majority is required (if you appoint 3 or more Attorneys) before your Attorneys can act on your behalf.
If you appoint a substitute Attorney, they will only have authority to act as your Attorney if the first appointed Attorney dies, resigns or otherwise vacates his position.
Attorney vacates office
Section 5 of the Powers of Attorney Act 2003 states that there is a vacancy in the office of Attorney if the Attorney dies, resigns, becomes bankrupt, loses mental capacity or the authority to act is revoked by the Supreme Court or the Guardianship Board.
TYPES & FORMS OF POWER OF ATTONEY
There are many forms of instruments creating a powers of Attorney including:
v a general power of Attorney (ceases to operate if the principal loses mental capacity);
v a enduring power of Attorney (continues to operate even if the principal loses mental capacity);
v a irrevocable power of Attorney (continues to operate even if the principal becomes bankrupt limited to specific assets and given for valuable consideration); and
v a corporate power of Attorney (enabling a person or another corporate entity to act as Attorney on behalf of that company).
v Interstate power of Attorney (Victoria, Western Australia, South Australia, Queensland, Tasmania as well as the Northern Territory).
v Overseas/Foreign power of Attorney (such as United Kingdom, French, German, America etc).
If you need a power of Attorney for interstate or overseas, you will need to make a power of Attorney under their laws.
We can help provide all forms of Australian and International Powers of Attorney .
To ensure clarity the correct terminology is:
v the “Power of Attorney” is the written document creating and granting the the Power;
v the person making the written document and empowering another person to act on his or her behalf is called “the Principal”.
v the person empowered is the “Attorney”.
v The powers and authority granted by the Principal to the Attorney are contained in the document called the Power of Attorney.
PRECRIBED WITNESS CERTIFICATE FROM A LAWYER
Each of the types of Power of Attorney require a certificate from a approved person such as a lawyer certifying that the instrument appointing an Attorney has been explained to the principal and the implications of that appointment. Repeatedly I tell clients not to treat this process in a cavalier fashion and blind trust hoping for the best.
A Power of Attorney is an amazingly powerful document and any action by the Attorney pursuant to that authority binds the principal.
The acceptance of the appointment as Attorney.
After the lawyer has provided the certificate of explanation and the principal has signed the power of Attorney document, the Power of Attorney does not commence to operate until the Attorney has accepted the appointment by signing the acceptance contained within the power of Attorney.
Also the principal may have specified that the power of Attorney is only to operate when:-
v the principal is overseas;
v only within New South Wales and not interstate or overseas;
v for a limited and specified period of time,
v on the happening of a certain event such as the principal is no longer has mental capacity to manage his or her personal affairs.
FINANCIAL MATTERS ONLY
It is important to note that the Power of Attorney only relates to “financial matters” during the Principal’s life. The Power of Attorney ceases to operate upon on the death of the principal, when the last will and testament of the deceased becomes the operative document.
A LIVING WILL OR APPOINTMENT OF A GUARDIAN IN RELATION TO HEALTH AND LIFESTYLE MATTERS
The power of Attorney does not relate to health matters or where the principal should live. This is a separate document often called “a living will” or “appointment of a guardian in relation to health and lifestyle matters”.
Similarly, it follows that this document ceases to have any effect or operation on the death of the principal
AMENDMENTS TO THE POWER OF ATTORNEY ACT
Recently the New South Wales Government made changes to the Powers of Attorney Act standardizing the form of the appointment by a “Principal “of his or her Attorney or Attorneys.
On my reading of the Act It would not appear to be essential that the standardized form “must” be used however as certain banks and institutions are familiar with the form and to avoid unnecessary delays it is probably preferable to use the new standard form.
However the Standard Power of Attorney is still imperfect and fraught with danger.
The Standard Power of Attorney always needs to be customised by a Lawyer to fit the Principals needs and circumstance. By analogy it is like a pair of shoes-one size does not fit all.
INCREDIBLY POWERFUL DOCUMENT-DANGER- WARNING
A Principal is bound by the Acts of his Attorney- this is the cornerstone of the Law.
A Principal cannot say later ,”but I didn’t understand I was giving my Attorney this authority and I now withdraw this authority”- sorry too late the horse has bolted and the gate is now shut. No recovery action lays against an Attorney for anything done by the Attorney in good faith.
Unrestricted Powers of Attorney are incredibly powerful documents, and subject to misuse and abuse in the wrong hands particularly if not drafted precisely and implementing restrictions and limitations – as I often tell clients the moment a Principal signs an instrument appointing a person as their lawful Attorney, that Attorney person can whip over to the bank, and empty the Principal’s bank account in a flash (even before the ink is dry or the Principal has left my office).
Unrestricted and unlimited Powers of Attorneys mean in simple terms “anything you can do with your property your Attorney can do”.
v No Restrictions.
v No limitations.
v No safety valves.
v No checks or balances.
v Or as the French say ‘carte blanche’ (free reign, complete freedom, full authority, complete discretion, a free hand, a blank cheque).
ABUSE AND MISUSE OF A POWER OF ATTORNEY
How do you make sure that the person or persons that you have appointed as your Attorney will not feather their own nests? A very good question!
The answer is that some Powers of Attorney will from time to time be abused regardless of how carefully the document is drafted and regardless of what restrictions and limitations are imposed in the document or what penalties are threatened or imposed against the dishonest Attorney.
Politicians are unable to differentiate their parliamentary expense account from personal use?
Possibly the answer is to provide some monetary consideration to the Attorney along the following lines:-
“In appreciation of my Attorney agreeing to accept the administration of my burdensome financial affairs, I direct that my Attorney shall be entitled to receive the sum of $1000 per annum from my financial resources each year ,in addition to the reimbursement of out-of –pocket expenses”
POTENTIAL VICTIMS AND RISK PERSONS-ELDERLY,SICK, LONELY
Abuse is particularly prevalent in relation to lonely and elderly persons who do not have the checks and balances of family infrastructure, but rely on their ‘carer’, ‘cleaner’, ‘helper’, ‘distant relative’ or supposed ‘friend’.
Nevertheless the vast majority of people are scrupulously honest, reliable, charitable and trustworthy.
SELECT A PERSON OF INTEGRITY
Obviously it is essential to choose the “right person” or “persons” but even then there is no assurance of their honesty or integrity.
SELECT JOINT OR MULTIPLE ATTORNEYS
Possibly it is best to appoint more than one Attorney as a check and balancing component- both Attorneys looking over their shoulder at each other This of course leads to problems of functionality in exercising the power of Attorney. For instance, must both Attorneys sign a withdrawal form at the bank so that the groceries or bills and accounts can be paid? It can make a relatively simple and straightforward task very time consuming and complicated.
One of the great attractions of a power of Attorney is its functionality and convenience. For example to pay regular accounts such as doctors, chemist, rates, gas and electricity or when the principal is overseas.
It is essential that the appointment of your Attorney not be a cavalier and thoughtless exercise.
STEPS TO MINIMISE ABUSE
My recommendations are:
v Confer with your Lawyer who has an insight into these matters so as to tailor your Power of Attorney to your needs and circumstances ;
v Always get a Lawyer to draft you Power of Attorney with limitations and restrictions;
v Leave the Original of the Power of Attorney with your Lawyer who will act as a ‘safety valve’ and who will only release the document if necessary and not on a whim or a fancy of the Attorney;
v Have more the one Attorney to watch over each other;
v Appoint different persons as the Executor of your Will, so your Executor can review the Attorneys actions and recover any benefits improperly taken by your Attorney;
v Draft restrictions and limitations within the document, for example:-
- “the integrity of my last Will and Testament is to be maintained where possible and my Attorney must account to my executor for any personal or indirect benefit received, over and above reasonable out-of–pocket expenses incurred by Attorney”.
- My Attorney must obtain advice from my Accountant, Stock Broker, Financial Adviser and Lawyer in relation to the sale and disposal of property having a value in excess of $10,000 and the reinvestment of the proceeds;
- My Attorney must consult with my family members in relation to disposal of mayor assets and investments;
- My Attorney may not make gifts to themselves or to third Parties in total exceeding of $500 a year;
v Open a specific banking account from which your Attorney can operate, with directions to your bank to “top up that account from time to time”.
POTENTIAL TAX & CENTRELINK NIGHTMARE CAN BE CREATED BY NAÏVE AND UNINFORMED ATTORNEYS
Unsuspecting and well intentioned sale of Assets by Attorneys, oblivious to potential problems, can create horrible nightmares, unsuspectingly triggering Capital Gains Tax and Centrelink Pension problems, which could have been avoided with other strategies.
THE CASE OF ASSETS SOLD BY THE ATTONEY-v- ASSETS GIFTED IN A WILL
Interestingly an amendment have been made to the Power of Attorneys Act in relation to the disposal of an asset by an Attorney pursuant to an enduring Power of Attorney (for example the Family Home owned by the Principal is sold so the Principal can purchase a retirement unit or use the funds as Deposit Bond for a Retirement Village or Convalescent hospital) which has been bequeathed by the Principal in his or her Will to a relative or other person.
The Common Law of Ademption
Under the Common Law of Ademption as that asset no longer exists, the bequest under the Will automatically fails and the converted asset and residue funds from the sale formed part of the residual estate, and consequently the intended beneficiary might receive nothing, unless an appropriate clause is drafted into the Will, allowing the converted asset to be traced and acquired by the intended beneficiary.
Question does the amendments to Powers of Attorney Act under Section relating to the Law Ademption go far enough? This amendment only applies to assets sold by an Attorney under an ‘Enduring Power of Attorney’. Apparently the Law of Ademption continues if the sale was implemented pursuant to a ‘General Power of Attorney’?
Effect of Ademption of testamentary gifts by Attorney under enduring power of Attorney.
(1) Any person who is named as a beneficiary under the will of a deceased principal who executed an enduring power of attorney has the same interest in …. other property arising from any sale …by the attorney under the power of Attorney as the named beneficial would have had in the property the subject of the sale….as if no sale…had been made.
(2) Any surplus money … arising from the sale … referred to in subsection (1) is taken to be of the same nature as the property sold…. .
Registration of Powers of Attorney and Revocation of Powers of Attorney.
- Unless the Power of Attorney is proposed to be used for the sale and purchase of Land it is not required to be registered. Nor is the Revocation of a Power of Attorney required to be registered. If your Attorney is signing certain documents that affect real estate, the power of Attorney must be registered at Land and Property Information New South Wales.
Revocation of a Power of Attorney.
You Attorney must always act in your best interest. If your Attorney does not follow your directions, or does not act in your best interest, you should immediately revoke the power of Attorney. You will be only able to do so whilst you retain mental capacity. If you revoke the power of Attorney you must notify the Attorney of the revocation that they are no longer your Attorney.
The principal of a Power of Attorney can revoke the grant at anytime except in 2 situations:
- In case where the Principal no longer has ‘mental capacity’(Stroke, Alzheimer’s or similar mentally disabling affliction or infirmity of the mind);
- Irrevocable Powers of Attorney.
Of course, if a Principal as only granted a General Power of Attorney, the authority granted under that instrument ceases when the principal no longer has mental capacity.
The purpose of a Enduring Power of Attorney was to avoid the necessity of an application to the Guardianship Board for the appointment of an Attorney, to fill that void, which involves an application to the Guardianship Tribunal, Legal costs, time and inconvenience.
The application to the Guardianship Board was often initiated by Social Welfare Workers who became aware that someone was needed to manage a person’s financial affairs. Generally the tribunal would appoint a member of the family or in the event that a person did not have any family infrastructure, the Public Trustee.
Overseas and Interstate Powers of Attorney.
In this day and age of the International Trade and Commerce and Internet it is a fairly simple matter to obtain the appropriate form of Power of Attorneys used in foreign countries or for that matter interstate.
For many years lawyers have drafted long winded and all encompassing Powers of Attorney to cover every contingency on all corners of the earth, but that is no longer necessary with the advent of the Internet and the Web making these documents readily available and able to be certified by Lawyers, Public Notaries and Commissioners of Affidavits.
Again for pragmatic reasons it is simpler to use the prescribed form of a particular state or country, as the banks or financial institutions where that power is to be operated, are familiar with their form of Power of Attorney.
Review of a Power of Attorney
An application can be made to the Guardianship Tribunal or the Supreme Court for a review of a power of Attorney in certain circumstances.
In some cases it is no longer appropriate for a person to continue to act as the Attorney (for example the Attorneys Bankruptcy) this will result in a vacancy to that position.
In these circumstances if the principal is unable because of mental infirmity to appoint a replacement, then an application can be made to appoint a replacement or alternative Attorney.I am pleased to see that a “interested party’ can ask the tribunal to review the grant or the exercise of a Power of Attorney. An “interested party” is defined in section 35 as “any other person who, in the opinion of the review tribunal, has a proper interest in the proceedings or a genuine concern for the welfare of the principal”.As you can probably detect from the general tenor of my writings , I am concerned at the abuse and misuse that occurs in the operation of the exercise of the Power of Attorney.If there is suspicion of a misuse of the Power of Attorney, then the Tribunal or the Supreme Court can make a Financial Management Order, which will hopefully prevent inappropriate behavior by the Attorney.Unfortunately the cause of ensuring the wishes of the principal and the proper action of the Attorney may well fall to the concerned “interested party” who has no upside to such involvement.Why would an interested party become involved in such proceedings?That person is likely to be vilified and abused and finding themselves embroiled in an action that offers little reward for their integrity causing them great stress in a matter that he is really not their fight and for which they will receive little commendation.One needs only to look at ‘whistle blowers’. Most of them regret that they have opened their mouths. Sadly the road to ruination is paved with people of principle. Sadly, I think that a lot of these cases of abuse involving Powers of Attorney will continue.
Section 36 of the Power of Attorney Act an Interested Party may apply for review
(1) Tribunal may review making or operation and effect of power. A Review Tribunal may, on the application of an interested person, decide to review the making, revocation or the operation and effect of a reviewable power of Attorney or not to carry out such a review.
(2) As a consequence of reviewing the making, revocation or operation and effect of a reviewable power of Attorney, a Review Tribunal may decide whether or not to make an order under this section.
(3) Orders relating to making of power of Attorney A Review Tribunal may make either or both of the following orders with respect to the making of a power of Attorney:
(a) an order declaring that the principal did or did not have mental capacity to make a valid power of Attorney,
(b) an order declaring that the power of Attorney is invalid (either in whole or in part) if the tribunal is satisfied:
(i) the principal did not have the capacity necessary to make it, or
(ii) the power of Attorney did not comply with the other requirements of this Act applicable to it, or
(iii) the power of Attorney is invalid for any other reason, for example, the principal was induced to make it by dishonesty or undue influence.
(3A) Orders relating to revocation of power of Attorney A Review Tribunal may make either or both of the following orders with respect to the revocation of a power of Attorney:
(a) an order declaring that the principal did or did not have mental capacity to revoke a power of Attorney,
(b) an order declaring that the power of Attorney remains valid (either in whole or in part) if the tribunal is satisfied:
(i) the principal did not have the capacity necessary to revoke it, or
(ii) the revocation is invalid for any other reason, for example, the principal was induced to make the revocation by dishonesty or undue