It’s a morbid thought many of us shy away from, but loss of mental capacity can affect anyone – not just the elderly and infirm. That’s why it’s important to have a plan in place so someone can carry out day-to-day tasks for you if you’re unable to do so.
An enduring power of attorney (POA), a legal document that gives a person the authority to manage your assets and make legal and financial decisions on your behalf, can help if you are unable to look after your affairs yourself, because you lack either the physical or mental capacity to do so.
However, POAs are powerful documents that can cause serious issues in the wrong hands, so careful planning is important. Here we look at some of the common mistakes involving POAs and how you can avoid them.
If you do not have an enduring POA and become of unsound mind, there are a number of risks.
The process for someone to be able to manage your financial and legal affairs on your behalf can be complex. A friend or family member would need to apply to either the supreme court or civil and administrative tribunal in your state for permission to manage your affairs. This takes time, there can be delays in the process and it can also result in unnecessary expense and stress if there are disputes as to who should be appointed.
The process can also result in the appointment of someone you would not have chosen to manage your affairs, for example, a relative you are estranged from or someone you don’t know well or wouldn’t ordinarily trust to take on this role for you.
If you don’t currently have a POA, consider engaging a wills and estates solicitor who can help you plan ahead.
Your first instinct when nominating an attorney may be to choose a close relative or friend. However, the person you select will have considerable power over your finances and property and may also have to make tough decisions in the future, so it is important to get the appointment right.
An attorney should be responsible and have the right financial and business acumen to make decisions on your behalf or seek the appropriate advice if it is needed. Consider how a potential attorney manages their own affairs. If they have an addiction or financial issues, for example, they are probably not the right choice.
We have seen many cases of ‘inheritance impatience’, where a family member has felt entitled to an older person’s assets and misused funds for their own purposes. Therefore, you should ensure you are 100 per cent certain that the person you choose will put your interests before their own.
It is legally possible to appoint more than one person as an attorney. However, if you choose multiple people, you should consider their relationship and ability to make joint decisions. If there is sibling rivalry or issues with blended families, disputes can arise.
We have recently been involved in a matter where an individual had a stroke and was rendered incapacitated. The client’s two nominated attorneys were a second spouse and a child from another relationship. The child believes the step-parent is using funds to benefit themselves and there are now court proceedings occurring, as both attorneys want the POA to be reviewed.
When selecting one or more attorneys, ask yourself, will this work in practice? It is important to be realistic. If you don’t have any relatives or anyone you feel you can trust to handle your financial and legal affairs, you should obtain legal advice about appointing a professional as your attorney.
Attorneys can be given limited or unlimited powers to make specific financial and legal decisions on your behalf, and in some states, personal and health decisions. This can be as limited as paying your bills, all the way through to making all decisions in relation to your finances.
When making a POA, consider whether you would like to make any specific inclusions or limitations as to the decision-making powers granted to the attorney. Examples may include specifying which, if any, care facility you prefer or limitations on investing in certain types of assets.
The powers granted to a POA can be extensive, so consult your lawyer on whether limitations should be included and if more than one POA is required.
Circumstances can change, so if you have concerns about your choice of POA, work with your lawyer to revoke it and prepare a new one while you still have capacity to do so.
In a recent case we dealt with, a POA was reviewed due to complex family dynamics. Three children were initially appointed as attorneys but one is now estranged from the mother, one lived overseas and the other was estranged from both other siblings. In this case the POA was simply unworkable and needed to be updated.
You should also regularly revisit a POA to ensure it remains valid. POAs can be rendered invalid for several reasons, such as the death of one of the nominated attorneys or if an attorney is unwilling or unable to carry out their duties.
Making a POA, selecting the right person and clearly specifying your wishes ensures that you have a plan in place for administering your financial and personal affairs if you are able unable to do so. This gives you more control over how that process will be handled should the need ever arise.
IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.