While no one expects to lose the capacity to manage their own affairs, many people take comfort from knowing that they have planned ahead and made arrangements for a trusted relative or friend to make decisions on their behalf, if something does happen.
In New South Wales there are two different forms people can use to appoint someone else to make decisions for them, should they lose capacity in the future.
The first is an enduring Power of Attorney which appoints someone to look after their financial affairs
The second is an Appointment of an Enduring Guardian, which appoints someone to make decisions relating to health and lifestyle if the person becomes incapable of making those decisions for themselves (see separate article Enduring Guardian ).
What is a Power of Attorney?
It has been described as “a formal instrument by which authority or power to represent the [principal] is conferred on the [attorney]”. It may be more easily understood as a deed made by a person (who is most commonly referred to as “the principal”) who confers authority on another person (who is commonly called “the attorney”) to make decisions concerning some or all of the principal’s property.
Who can be principal?
Any legal entity can be a principal, and this includes a corporation. If an individual is selected, the person must have capacity to make a power of attorney. This means the person must be at least 18 years of age. Other than this formal requirement, capacity is assessed as being relative to the nature, terms, purpose and context of the particular transaction.
Who can be an Attorney?
Any legal entity can be an attorney, this includes a corporation. If an individual is selected, the person must have capacity to act as the attorney. However other subjective attributes are also important, such as the person being trustworthy, sufficiently responsible and wise to deal prudently with the principal’s property and to judge when to seek assistance and advice, and having the wherewithal to act fairly and wisely in making decisions.
What can an attorney do?
Subject to restrictions contained in the power of attorney, an attorney can make decisions concerning all of the principal’s property. “Property” has a broad legal meaning, being “a bundle of rights” and “a legally endorsed concentration of power over things and resources”. It is because of the broad nature of “property” that it is colloquially said that an attorney can make decisions concerning the principal’s legal and financial affairs.
What are an attorney’s obligations?
An attorney must always act in the principal’s best interests. This means that the attorney cannot gift the principal’s property, whether to the attorney or anyone else, without the principal’s express permission.
The attorney cannot benefit from being the attorney without the principal’s express permission.
The attorney must keep the principal’s property (including money) separate from the attorney’s property, and the attorney must keep accurate accounting records which can be produced, if necessary.
The attorney must act honestly in all matters concerning the principal’s property. It has been said that this obligation means that, where an attorney has discretion as to what course of action to take, the attorney must be guided by the honest exercise of his or her own judgment but in the interests of the principal.
The attorney must act in good faith and for a proper purpose.
An attorney has a duty to obey the principal’s directions.
An attorney owes the principal a duty of care.
Are there different types of powers of attorney?
There are various types of powers of attorney. One type, an irrevocable power of attorney, is sometimes used in mortgages, commercial leases and other business transactions.
The vast majority of powers of attorney however are revocable. Revocable powers of attorney may be general powers of attorney or an enduring power of attorney.
Whilst general powers of attorney have less formal requirements, and therefore can be more easily made, they are only valid whilst the principal has capacity.
An enduring power of attorney continues to be effective even, if a principal loses capacity.
What authority (or powers) can and can’t be given to an attorney?
A power of attorney can generally authorize an attorney to make decisions about the principal’s property. The principal can limit or place conditions upon the exercise of this broad authority. The authority conferred by a power of attorney cannot extend to authorizing an attorney to perform:
- unlawful acts, which includes criminal conduct but also conduct which is not lawful, such as not paying debts that are properly due, or
- activities involving discretions or skills which are personal to the principal, such as:
- personal contractual obligations like employment;
- decisions about health care, medical treatment, welfare or lifestyle – it is this limitation which spawned legislation allowing enduring guardian appointments;
- deciding to marry or divorce;
- making a will;
- swearing an affidavit or making a declaration about events within the personal knowledge of the principal;
- acting as a business partner;
- acting as a director, unless specifically allowed by Corporations Act, 2001
- revoking a power of attorney, will, enduring guardian appointment, and the like; and/or;
- performing requirements which legislation imposes personally on the principal.
When does a power of attorney operate?
A general power of attorney may operate at any time chosen by the principal, but cannot be used if the principal loses capacity.
An enduring power of attorney cannot operate until the attorney accepts the appointment by signing the power of attorney. However, the principal may also chose a later time for the power of attorney to operate, such as:
- once the attorney considers that the principal needs assistance managing his or her affairs, or;
- once a medical practitioner certifies that the principal is unable to manage his or her affairs in which case, care will be needed to ensure that the medical practitioner, or other person, as appropriate, documents his or her assessment of the functionality of the principal’s capacity and this will be achieved by using the precise phrasing contained in the power of attorney.
What is the difference between a Power of Attorney and Enduring Guardian?
Powers of Attorney and Enduring Guardian Appointments give authority to another person to be the document-maker’s substitute decision-maker.
With the relatively rare exception of irrevocable powers of attorney, persons given authority by both documents only have authority during the lifetime of the principal.
An attorney (appointed by a power of attorney) only has authority to make decisions concerning the property (or legal and financial affairs).
In contrast, an enduring guardian has authority to make decisions for the appointor’s principal.
In addition, an enduring guardian cannot make decisions unless the appointor is unable to manage his or her person, whilst the situations in which an attorney can act will be determined by the principal when making the power of attorney.
If you would like a pdf of this article please download here Power of Attorney
