1. The Power of Attorney

Christina Wolfsbauer, Senior Associate and Peter Bobbin, Managing Principal at Argyle Lawyers

What is a Power of Attorney?

A Power of Attorney is simply a document under which a person (donor) gives to another person (donee) the power to act on their behalf within the terms of the document. The effect is that all acts done by the donee (the person who receives the power) acting in accordance with the terms of the Power of Attorney have the same legal effect as if they had been done by the donor (the person who gave the Power of Attorney).

The requirements of a valid Power of Attorney document is governed by State-based laws and accordingly there are slight differences between the requirements in each Australian State or Territory. It is important to consider where you live and where you hold assets and it may be necessary or appropriate to hold more than one Power of Attorney. Further, if you are moving inter-State, it is important that you consider updating your Power of Attorney if you have one in place.

Why do I need an Enduring Power of Attorney?

What distinguishes an Enduring Power of Attorney from any other Power of Attorney is that it will continue to be operative should the donor lose legal capacity, for example, through unsoundness of mind. A general Power of Attorney will terminate should such an event occur (i.e. a general power of attorney does not endure loss of legal capacity).

Consider the following example of Mr and Mrs Brown:

Both are employees (not involved in a business partnership or a solely owned business). Their primary residence, as well as their personal accounts, are held jointly. Assume that one day Mr Brown was driving home and was involved in a car accident in which he was severely injured, both physically and mentally. As a result of Mr Brown’s mental injuries he is suffering what is commonly referred to as “unsoundness of mind”. Mr Brown now lacks legal capacity to sign and/or execute any legal documents.

Assume that the family home was mortgaged. Responsibility for paying the mortgage now rests with Mrs Brown. She must find extra funds to pay for her husband’s medical and hospitalisation expenses. Hopefully, Mr Brown would have taken good advice and will have had appropriate insurance in place to assist the family through this difficult financial period.

Mrs Brown has a number of issues to deal with, including:

  • the personal accounts are held jointly, requiring both Mr and Mrs Brown’s signature, she is unable to sign cheques to use any money in those accounts; and
  • should she decide to sell the house (as she cannot meet the mortgage repayments alone or to meet her husband’s medical expenses), she will be unable to do so, as the house is owned jointly
  • In cases where a person loses legal capacity and doesn’t have a valid Enduring Power of Attorney, control of their assets comes under the power of the Office of the Protective Commissioner. Mrs Brown would need to petition the Office of the Protective Commissioner through the Supreme Court and apply to be the manager of her husband’s assets. This will not only involve legal costs and delays, but will also require Mrs Brown to prove to the Supreme Court that she is the appropriate person to look after such matters.

    Consider also that Mr Brown also holds shares in XYZ Limited. Due to changes in the industry the shares are expected to drop sharply. Until Mrs Brown is able to successfully petition the Supreme Court to gain control of Mr Brown’s shares, those shares cannot be sold. Thereby Mr Brown could lose a substantial amount of money because his shares cannot be sold at the most appropriate time.

    Further, what if Mr Brown was not an employee, but was a partner in a business partnership. Until there was a successful petition to the Supreme Court with respect to the partnership assets, the other partner would be unable to make any payments or sign any documents without the countersign of Mr Brown. Quite obviously this could also lead to the deterioration of goodwill and the profitability of a partnership.

    The benefits of an Enduring Power of Attorney

    The problems identified in the preceding paragraphs could have easily been overcome by an Enduring Power of Attorney executed by Mr Brown in Mrs Brown’s (or whomever ever else he wished to appoint) favour. Mrs Brown would have been able to sell the house and sign any of the personal cheques and/or make decisions with respect to the shares and partnership. Furthermore, Mr Brown may have elected different persons to control different assets. For example, with respect to the shares, Mr Brown could have nominated his share broker who is an expert in the field to act as his attorney with respect to his share portfolio.

    Therefore, in the case of Mr and Mrs Brown, the effect of the Enduring Power of Attorney would be to release Mrs Brown from possible financial burdens and to enable Mr Brown’s financial affairs to continue under the control of someone he knows and trusts. Mr Brown would also have the peace of mind knowing that in the event of something happening to him to render him unable to make his own decisions, such decisions would be made by people he trusts. Such foresight can also help to avoid arguments between family members.

    In such a scenario, it would be disastrous if a family not only had to deal with such a tragic accident, but was also financially handicapped. Unfortunately, it happens all too often. It is recommended that an effective succession and estate plan should include an Enduring Power of Attorney to prevent these or other problems occurring so as to properly protect your assets, giving you peace of mind.

    Originally published in EQUITY July 2016