Understanding Powers of Attorney

A Power of Attorney is a legal document made by a person (known as the principal or donor) that authorises a person (known as an attorney) to do anything the principal can lawfully do.

Each Power of Attorney will specify what an attorney may do on behalf of the principal.  A Power of Attorney may deal with a range of matters spanning from a one-off transaction, such as signing a contract to buy property, to completely managing the principal’s financial and legal affairs.

Before you consider making a Power of Attorney it is important to understand the purpose of different types of Powers of Attorney and the limitations that can be placed on the attorney’s functions.

When should I consider making a Power of Attorney?

Generally, a Power of Attorney is prepared when:

  • a person anticipates that they will need to sign documents, enter, or complete transactions when they will be unavailable to do so, for example when traveling; or
  • a person wants to ensure that they have appointed somebody they trust to look after their financial and legal affairs if they become physically or mentally incapacitated.

A well-drafted Power of Attorney will facilitate the management of your legal and financial affairs when you are unable to.

Are there any personal circumstances to consider when making a Power of Attorney?

A person can only make a Power of Attorney if they have legal capacity at the time of making the Power of Attorney.

Generally, a person will have legal capacity if the person is suffering from an illness causing impairment to their mental ability such as a head injury, stroke, Alzheimer’s, dementia or other medical complications.

If there are any doubts that you do not have legal capacity, a lawyer in consultation with a medical professional may assist you in determining whether you are in a position to make a valid Power of Attorney.

Types of Powers of Attorney

Limited Power of Attorney

A Limited Power of Attorney usually limits the attorney to carry out a very specific function, such as selling or buying a piece of real estate or acting only for a defined period of time.

General Power of Attorney

A General Power of Attorney permits the attorney to do anything the principal is lawfully able to do

Enduring Power of Attorney

An Enduring Power of Attorney may be very limited or general depending on its wording. An Enduring Power of Attorney differs from other types of Powers of Attorney as it will generally continue to be effective if the principal loses mental capacity but cannot be revoked by the principal after losing capacity.

In all cases, a Power of Attorney ends when the principal dies after which the provisions of the deceased’s Will (or the legislation governing an intestate estate) take effect.

Who should be appointed as an attorney?

Generally, a person over 18 years may be appointed as an attorney provided the person has legal capacity and is capable of understanding their role as an attorney.

Given the position of trust that the attorney will hold, principals should carefully consider who they appoint as their attorney.

Most appointments are made between spouses or partners with reciprocal trust and who are familiar with their respective legal and financial affairs. If the couple is ageing and in poor health, it may be preferable to appoint a trusted adult child, relative, or friend.

The appointment should take account of the level of skill and judgment required to carry out the anticipated role of attorney. Each person’s family and financial circumstances differ, and the duties required may range from the simple payment of regular bills to more complex matters involving large pools of money and/or business transactions.

If appointing more than one attorney, you should consider how well these people are likely to work together in managing your affairs. Attorneys may act jointly and severally, meaning both or either of them may act on your behalf with respect to a function. Alternatively, a direction that requires attorneys to act jointly only, means that each attorney’s consensus for each transaction will be required. Whilst it may be more convenient to appoint attorneys jointly and severally, a joint appointment may offer greater security. Again, it will depend on the principal’s individual circumstances.

What is the role of the Attorney?

An attorney must always act with diligence in the principal’s best interests and avoid a conflict of interest. The attorney should maintain separate records and accounts on the principal’s behalf.

Unless the principal is incapacitated and the attorney is acting under an Enduring Power of Attorney, the principal must authorise each function performed by the attorney.

Can a Power of Attorney be used in different States and Territories?

Most jurisdictions in Australia recognise and accept a Power of Attorney made in another jurisdiction provided it was validly given under the state of origin’s relevant legislation. If you anticipate that the Power of Attorney will need to be used interstate, your lawyer can check the relevant rules.

Can an attorney make health and lifestyle decisions on my behalf?

Although an Enduring Power of Attorney is still valid when the principal loses mental capacity, the attorney cannot make health and lifestyle decisions on behalf of the principal.  An Enduring Power of Guardianship appoints another person to make personal, lifestyle and medical treatment decisions on behalf of the principal if that person is incapacitated.

An Advance Health Directive enables a person with mental capacity to plan for his or her future health care, accommodation and personal affairs and to specify health-related outcomes or procedures they wish to avoid.

Summary

A carefully drafted Power of Attorney enables you to appoint one or more persons you trust to handle your legal and property affairs for a limited period in planned circumstances, or indefinitely should the unforeseen occur.

You may wish to consider making an Advance Health Directive or an Enduring Power of Guardianship if you would like someone to make health and lifestyle decisions if you lose legal capacity.

If you or someone you know wants more information or needs help or advice, please contact us.

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