Something that often surprises solicitors practicing in the area of succession law is the number of people who have been prudent enough to ensure their assets and loved ones are protected after their death by having a Will in place, only to completely leave to chance what might happen while they are still alive, but without the ability to make decisions.
We find that this omission, committed even by very prudent individuals who do not wish to leave anything to chance, is almost never intentional. Rather, it seems to stem from the fact that Powers of Attorney are misunderstood the majority of the population – and that only takes into account those who know of their existence!
In fact, many of our first-time clients mistakenly believe that their existing Will somehow incorporates a Power of Attorney or allows the Executor under their Will to make decisions on their behalf before they pass away. In actual fact, this is never the case.
What is a Power of Attorney and how does it differ from a Will?
Given this widespread confusion and the implications for those who consequently do not have a Power of Attorney in place, it is necessary to clearly and simply break down what a Will does, what a Power of Attorney does, and how they differ from each other.
A Will is a legal document which allows the Testator (the person making the Will) to set out the way in which their assets should be distributed upon their death. The person who is appointed under a Will to facilitate that distribution of assets is known as the Executor. The key point to remember is that a Will only comes into effect after the Testator has died. An Executor has no power to make decisions on a Testator’s behalf while the testator is still living. For more information on Wills, see the previous article in this series, The Essential Guide to Wills in Queensland
A Power of Attorney, on the other hand, is a legal document which allows the Principal (the person making the Power of Attorney) to appoint a person (or persons), known as the Attorney or Attorneys, to make decisions on their behalf while they are still alive.
There is no crossover between these two types of documents. A Will has no effect whatsoever before the Testator dies, and a Power of Attorney becomes immediately ineffective upon the death of the Principal. Often, the person appointed as Executor under a Will is even different from the person appointed as Attorney under a Power of Attorney. For this reason, it is always necessary to have both documents in place.
What are the different types of Powers of Attorney?
There are two main types of Powers of Attorney, General Powers of Attorney and Enduring Powers of Attorney. While everyone should ensure that they have valid Enduring Powers of Attorney in place at all times, General Powers of Attorney are nonetheless extremely useful documents in certain circumstances.
A General Power of Attorney is a document which allows the Principal to appoint an Attorney (or Attorneys) to make financial decisions on their behalf, with such powers coming to an immediate end once the Principal loses the capacity to make their own decisions. Usually, these documents are used for the purposes of allowing somebody to make decisions on the behalf of another for a limited period of time. A common example is a situation where the Principal is going overseas and wishes their Attorney to be able to sign a contract for the purchase of residential property and draw settlement cheques from their bank account on their behalf. Such documents are usually revoked once they are no longer needed. To continue with the above example, the document would be revoked upon the Principal’s return to Australia. Thus, General Powers of Attorney can be extremely useful tools in circumstances where distance or convenience require another person to be able to ‘step into one’s shoes’ financially.
Conversely, the decision-making powers granted to an Attorney (or Attorneys) under an Enduring Power of Attorney continue even after the Principal loses their own decision-making capacity. In fact, this is the only time most Enduring Powers of Attorney are utilised. In putting an Enduring Power of Attorney in place, Principals seek to ensure that once they lose their decision-making capacity (for instance, by way of dementia or vegetative state), their chosen person is able to make decisions on their behalf. Contrary to General Powers of Attorney, Enduring Powers of Attorney not only allow for Attorneys to make financial decisions, but also personal and health decisions. As such, these are the documents which every person should have in place, ready for ‘when the time comes’.
When do I need to put an Enduring Power of Attorney into place?
The short answer is now. Once you lose your decision-making capability, you will no longer be able to put a Power of Attorney in place. You can only put a Power of Attorney into place whilst you retain your full decision-making capacity. As a result, it is important to ensure you are protected early and not risking a situation whereby you lose your capacity to make decisions through accident or ill health, by which time it will be too late to put a document into place. If you fail to put an Enduring Power of Attorney in place and subsequently lose your decision-making capacity, your loved ones may have to go through the difficult process of obtaining an order appointing them to act on your behalf. This could make things exceptionally difficult in the interim as banks and other institutions will usually want to see documentary evidence (usually in the form of an Enduring Power of Attorney) of an individual’s ability to make decisions on the behalf of another.
What kinds of decisions can my Attorney make on my behalf?
Under a General Power of Attorney, Attorneys can only make financial decisions on your behalf. These include, for example, signing a contract for the purchase or sale of a house or car, withdrawing monies or closing a bank account, or purchasing investments.
Under an Enduring Power of Attorney, Attorneys can always make personal and health decisions on your behalf. These include decisions such as where you live or what kinds of healthcare you receive. Under an Enduring Power of Attorney, in addition to personal and health decisions, you can also specify whether you wish for your attorney to make financial decisions on your behalf.
When can the decision-making powers commence?
When making an Enduring Power of Attorney, the power to make personal and health decisions will always commence upon the Principal’s loss of decision-making capacity. Such a loss of capacity will usually be evidenced by a letter from the Principal’s doctor confirming same. For financial decisions under both General and Enduring Powers of Attorney, the Principal can choose when the power is to commence. With respect to Enduring Powers of Attorney, most Principals choose for the powers to commence upon a loss of capacity, however this is not a must. Also common for financial decisions (particularly where the Attorney is the Principal’s spouse) is for the Principal to choose for the powers to begin immediately. This way, the document can be used both as an Enduring Power of Attorney and in the way that a General Power of Attorney is usually used, for the facilitation of transactions in circumstances where it is inconvenient for the Principal to be present. It is also possible to choose a particular date for the power to commence. This is the usual course where General Powers of Attorney are concerned.
Who can I appoint as my Attorney, and how many Attorneys can I have?
You can appoint up to four Attorneys. When appointment more than one Attorney, you specify how you would like your Attorneys to come to their decisions (for example, you can specify that they must unanimously agree on a decision, that a majority must agree, or that any one of them may make a decision). While one or two Attorneys are usually sufficient, however in circumstances a Principal will wish to have input from a variety of people (for instance, a spouse and a child in a blended family situation).
You can also appoint attorneys successively, so that if your first choice has passed away or is not able to act, the power will pass to your second choice and so on.
You should appoint people you trust, such as close family of friends, as your Attorneys. You may not appoint a person under 18 years of age or a person who is your paid carer.
What obligations will my Attorney have while making decisions on my behalf?
Attorneys have an obligation to discharge their duties honestly and with reasonable care. Attorneys must comply with a number of duties. Some of the more important duties include the duty to keep records, the duty to keep the Principal’s property separate from their own, the duty to avoid transactions which constitute a conflict of interest, the duty to not waste of give away the Principal’s property and the duty to promote the Principal’s health.
In the event that an Attorney fails to comply with these duties, they may be investigated by the Public Guardian or removed by the Queensland Administrative and Appeals Tribunal.
How can I revoke a Power of Attorney?
Revoking a Power of Attorney is a very simple matter. In some circumstances, a Power of Attorney becomes void by default. General Powers of Attorney will automatically become ineffective upon the Principal’s loss of capacity, while both General and Enduring Powers of Attorney will automatically become ineffective upon the Principal’s death.
Where a Principal wishes to revoke a Power of Attorney before its automatic lapsing, they may do so (so long as they still retain their decision-making capacity) by executing a new Power of Attorney of the same type which supersedes the old, or by simply signing a revocation form which immediately causes the power to cease.