Of course I trust you…Powers of Attorney explained by the professional

Written by Mark Tigwell, Director of Bedfords Legal

Urban Myth

A person’s next of kin can make financial and other decisions if the person loses capacity – this is simply wrong!

Fact

No one (not a spouse, a child, a parent or a friend) is entitled to make decisions for another person unless they hold a power of attorney.

If a person loses capacity and they have not made a power of attorney, it is then necessary to apply to a tribunal to have someone, perhaps a family member but perhaps also the public trustee, appointed to make decisions for them.  This expensive and uncertain process can be readily avoided by putting a power of attorney in place.

What is a Power of Attorney?

A power of attorney is a legal document by which one person (called the Principal) appoints another (called the attorney) to make decisions or do acts on their behalf which are legally binding.

Powers of attorney can be broad or limited.  The document itself will specify the authority and powers given by the Principal to their attorney.  A general power of attorney allows the attorney to do most things the Principal can do.  A limited power of attorney only allows the attorney to perform the acts or do the things specified in the document.

You would only appoint someone as your attorney who you have the utmost trust and confidence in.

Types of Power of Attorney

The most common types of powers of attorney are:

• General power of attorney – this type of power of attorney only operates while the principal can make their own decisions about financial and property decisions.
• Enduring power of attorney – this type of power of attorney continues to operate where the principal can no longer make decisions for themselves (otherwise known as having impaired decision-making capacity).

There are different laws relating to powers of attorney in each state and territory.

What can an attorney do?

In the Australian Capital Territory, there are four categories of decisions or actions for which a Principal can appoint an attorney, being:

• property and financial matters;
• personal care;
• health care matters; and
• medical research matters.

Property matters

The property function authorises an attorney to do things on behalf of their Principal like:

• paying bills, rates, insurance and other expenses;
• filing tax returns;
• withdrawing and depositing money;
• undertaking a real estate transaction or dealing with land owned by the Principal);
• making investment decisions including buying and selling shares for their Principal;
• carrying on a business on behalf of their Principal; and
• paying maintenance and accommodation expenses for the Principal and their dependents.

A Principal can decide to limit the authority of the attorney in any way they wish.

Personal care matters

The personal care function authorises an attorney to make decisions on behalf of their Principal like:

• decide where they live and who they live with;
• decide what education they receive;
• how they dress and their diet;
• where they go on holiday;
• whether, where and how you work; and
• organising services (for example assistance with bathing, cooking and cleaning).

There are special matters that an attorney cannot make decisions about, including:

• making or revoking the Principal’s Will;
• making or revoking the Principal’s Power of Attorney;
• exercise the Principal’s right to vote in an election; and
• consenting to the marriage of the Principal.

Health care

The types of decisions an attorney can make under the health care function include:

• consenting to a medical procedure or treatment being given to the Principal;
• refusing to allow a medical treatment or procedure to be undertaken on the Principal;
• the donation of the Principal’s body or tissue; and
• deciding what dental treatment the Principal receives.

Again, there are special matters that an attorney cannot make decisions about, which include:

• fertility sterilisation;
• termination of pregnancy;
• participation in electroconvulsive therapy or psychiatric surgery.

Medical Research matters

This area is unique to the Australian Capital Territory.  This function enables an attorney the right to make decisions such as whether their Principal is given an experimental drug or participates a medical trial for a medical condition the Principal has or is believed to have.

When can an attorney start making decisions for the Principal?

An attorney can only make decisions for a Principal about the personal care, health care and medical research functions where the Principal cannot decide for themselves (for example if they are in a coma). 

For the property function, the Principal chooses when the attorney can act on their behalf.  The Principal can choose to have this function commence immediately or only have the attorney’s powers start if they become incapable of making their own decisions.

If the Principal chooses to have the property function operate on incapacity, the attorney must prove, to the satisfaction of anyone relying upon the legitimacy of the power, that the Principal has in fact lost decision-making capacity.  This means that the attorney would have to produce a medical certificate from the Principal’s doctor, at the very least, to persuade their bank, for example, to allow withdrawals from the Principal’s account using the power.

If the Principal chooses to have the property function operate immediately, the attorney can do things on their behalf without the need to obtain a medical certificate.  While the Principal can still make decisions for themselves, the Attorney should only be doing things they are asked to do.  While the Principal has mental capacity, the Principal can always revoke the power or closely supervise its use.

The risk is ever-present that an attorney could do the wrong thing by the Principal, either deliberately or through carelessness.  This is a risk that you must weigh in the balance against the benefits that the attorneyship delivers to the Principal.

Obligations of an attorney

An attorney is in a special type of legal relationship with their Principal.  This means the attorney must:

• act honestly, carefully and in the best interests of the Principal;
• wherever possible, make the same decision that the Principal would have made, taking into account any wishes expressed by them or written directions provided by them;
• exercise reasonable care when making decisions. This may mean an attorney needs to seek professional advice from a lawyer, accountant, doctor or another professional;
• keep accurate records of dealings and transactions made under the power of attorney;
• avoid situations where their interests conflict with the interests of the Principal (unless the Enduring Power of Attorney specifically authorises the attorney to act in a conflict); and
• keep the Principal’s property and money separate from the attorney’s.

Making Gifts and Benefitting Others

As an attorney is obligated to act in the Principal’s best interests, they are not allowed to use the Principal’s money for anyone else unless the document appointing them expressly authorises this.

The legislation allows the Principal to include a direction that their attorney is allowed to make reasonable gifts, but only to a relative or close friend of the Principal, and only of a seasonal nature or because of a special event such as a birth or marriage. The attorney can also make charitable donations on behalf of the Principal in the same way as the Principal had been before they became incapable of managing their own affairs. 

The law also gives the Principal a choice whether or not to limit the circumstances in which their attorney can confer benefits on himself or herself. 

If the Principal wanted to, they could give their attorney unrestricted authority to receive benefits.

Ending your Power of Attorney

A Principal can cancel (known as revocation) the power of attorney or forbid its use for any particular purpose while ever they are still capable of making their own decisions.

Why are Powers of Attorney important?

Powers of Attorney are an important and essential part of any well-constructed estate plan. 

A power of attorney allows a Principal to decide who they want to be able to make decisions for them if they can’t, the nature of those decisions and when the right to make decisions starts.  Without a power of attorney, those decisions cannot be made without a specific order from the tribunal.

About Bedfords Legal

Bedfords Legal is a local award-winning specialised firm which focuses on estate planning, commercial and business law and property law.  Our commitment is to deliver honest and outcome focused services in a cost-effective way.  We are an ideal partner for clients looking for expert advice, explained in a clear and understandable way, which uses a pragmatic approach.  We are experienced, skilled and focused. We understand that the best solutions are not found in uninspired ‘one size fits all’ advice.

Our estate planning team is led by Mark Tigwell and Erin Bedford.  Mark and Erin have been separately recognised by Doyles Guide as Leading Wills Estates and Succession Planning Lawyers and Leading Wills and Estates Litigation Lawyers in 2019, 2020 and 2021.  Mark has also been recognised by in the 2021/22 Edition of The Best Lawyers in Australia for his work in Trusts and Estates.

If you have questions or are uncertain about whether you should consider a Power of Attorney, please contact Mark Tigwell or Erin Bedford at Bedfords Legal, we are here to help:

Mark Tigwell – Markmark@bedfordslegal.com.au          Erin Beford – erin@bedfordslegal.com.au

Phone number: 02 6285 2900

This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. The examples used are illustrative only and are not an estimate of the investment returns you will receive or fees and costs you will incur.

   

Milestone Financial Services Pty Ltd

(ABN 68 100 591 508) is an Authorised Representative and Credit Representative of AMP Financial Planning AFSL 232706