Given Australia’s ageing population, the importance of Australians needing to appoint a trusted person(s) through an enduring power of attorney is now a priority for many advisors who understand the risks. However, many Australians are not adequately informed and educated on all factors when considering implementing an enduring power of attorney. We have often seen clients implementing stock standard enduring powers of attorneys without provisions for the conferral of benefits on their partner or without wide enough powers to assist their partner with managing their joint affairs, which has caused significant restraints and costs. Professional advice should be obtained to ensure client’s financial affairs are maintained and managed in a proper manner in the event clients no longer have the ability to manage their affairs themselves.
Consider a client which has been and will continue to be reliant on you as their advisor to assist them with making financial decisions and managing their affairs during retirement. In the event your client was to suddenly lose mental capacity, how are you as an advisor going to be able to take instructions, manage the sale of property or shares or assist them in making decisions regarding their superannuation nominations and family trust interests? If you are not able to advise your client, who will be appointed to do so?
The risks of failing to adequately draft an enduring power of attorney, can present significant challenges, risks and consequences for you and your client. As an advisor, you must take the time to ensure that you adequately address the importance and consequences of implementing an enduring power of attorney with your clients while they have the mental capacity to do so.
Discussion Points – Practical Tips
Discussing the importance of implementing an enduring power of attorney can be a difficult discussion for many, however it is vital that your client understands the full scope, significance and real-life impact of the enduring power of attorney. An enduring power of attorney can provide significant power to an attorney, such as the ability to re-order your client’s financial affairs, confer or take benefits for themselves, or even frustrate your client’s original superannuation and testamentary intentions by selling assets or in some instances changing your client’s superannuation nominations which may result in certain beneficiaries or the estate being deprived of potentially millions.
In the recent case of Szozda v Szozda [2010] NSWSC 804, his Honour Justice Barret provided guidance by outlining points that should be understood by clients when considering an enduring power of attorney. His Honour indicated that there are two fundamental questions that clients should ask themselves when considering making an enduring power of attorney:
‘First, is it to my benefit and in my interests to allow another person to have control over the whole of my affairs so that they can act in those affairs in any way in which I could myself act – but with no duty to seek my permission in advance or to tell me after the event, so that they can, if they so decide, do things in my affairs that I would myself wish to do (such as pay my bills and make sure that cheques arriving in the post are put safely into the bank) and also things that I would not choose to do and would not wish to see done – sell my treasured stamp collection; stop the monthly allowance I pay to my grandson; exercise my power as appointor under the family trust and thereby change the children and grandchildren who are to be income beneficiaries; instruct my financial adviser to sell all my blue chip shares and to buy instead collateralised debt obligations in New York; have my dog put down; sell my house; buy a place for me in a nursing home?
Second, is it to my benefit and in my interests that all these things – indeed, everything that I can myself lawfully do – can be done by the particular person who is to be my attorney? Is that person someone who is trustworthy and sufficiently responsible and wise to deal prudently with my affairs and to judge when to seek assistance and advice? The decision is one in which considerations of surrender of personal independence and considerations of trust and confidence play an overwhelmingly predominant role: am I satisfied that I want someone else to be in a position to dictate what happens at all levels of my affairs and in relation to each and every item of my property and that the particular person concerned will act justly and wisely in making decisions?’
Further Considerations – Choice of Attorney
It is paramount that you ensure your client has chosen their attorney voluntarily and freely. The client needs to be able to trust that the attorney does not have any conflicts of interest and that they can be impartial when discharging their duty.
When considering the appointment of attorneys, attention must be given to whether assets are held by the client jointly or solely, as well as considering whether there are any encumbrances to third party interests over those assets, held with or without the attorney. Further consideration should also be given to the scope of powers the appointed attorney should have in respect of dealing with certain assets of your client. For example, if a husband and wife hold a joint asset such as property or a bank account, consideration must be given to whether the survivor who is appointed as attorney over the client has the ability to sell the asset, receive a personal benefit from that asset, or confer a benefit from that asset on themselves or on their children. Failure to consider these issues or adequately draft provisions in the enduring power of attorney may limit the ability for the attorneys to manage the client’s affairs and their own affairs where jointly held.
Ask questions such as “Has anything ever caused you to doubt your trust in your nominated attorney?”, “Do you believe your attorney would respect your wishes and make the decisions they believe you would make yourself?”, “Does the attorney have the appropriate skills to make sound financial decisions or should the attorney be directed to a trusted financial advisor prior to making decisions?”, and “What limitations should be placed on the attorney in carrying out their duties to ensure that they are acting in your best interest?”
Attorneys are subject to little supervision or scrutiny, so it is crucial that the client chooses someone who is trustworthy, sufficiently responsible and able to prudently deal with their affairs as once an enduring power of attorney is executed, your client is essentially surrendering their independence. Enduring power of attorney exploitation and abuse is becoming more prevalent and a specific case example you may refer to is the case of Watson v Watson [2002] NSWSC 919. Here the attorney, being the testator’s son, withdrew $55,000.00 from the testator’s bank account and transferred himself the title to the home contrary to his father’s wishes. Therefore, you must impress on your client that qualities of trust and confidence are of the upmost importance in deciding who to appoint.
Power – Joint or Severally?
If your client is considering appointing multiple attorneys, you must ensure your client understands the difference between appointing those attorneys to act either ‘jointly’, ‘severally’ or ‘jointly and severally’. Joint attorneys must all act together and cannot act separately. The death, resignation or incapacity of any joint attorney terminates the appointment of the other joint attorneys. To prevent this, attorneys can be appointed ‘jointly and severally’, which means the attorneys can all act together but can also act separately if they wish. It also means that the death, resignation or incapacity of any joint attorney does not terminate the appointment of each of the other joint attorneys. For example, your client may wish to appoint a family member and a professional to act jointly and severally to allow the family member to deal with day-to-day matters and the professional to deal with more complex affairs. Provisions may also be drafted to provide a mechanism for resolving any disagreements or disputes between joint attorneys to minimise family disputes and litigation.
Legal Requirements
For an enduring power of attorney to be valid, several legal requirements must be considered and satisfied. For this reason, it is important that the enduring power of attorney is drafted by an experienced estate planning solicitor to ensure it is properly executed and complies with all legislative requirements. If the document is not drafted carefully and accurately, your client runs a greater risk of it being later challenged or even set aside by the Court or Tribunal.
Contact Us
At MistryFallahi Lawyers & Business Advisors, our lawyers work closely with advisors to navigate the complexities of estate planning including enduring power of attorneys and ensure compliance with current legal requirements. If you have any queries or if you require assistance in developing strategies to ensure that you and your team are providing your clients with a comprehensive solution with their estate planning, please feel free to contact us.
