Why do I need an Enduring Power of Attorney?
Whether you have completed your estate plan or are embarking on the process of having a Will drawn up and put in place, you may be asking yourself whether you need an Enduring Power of Attorney. It is important to understand the different Powers of Attorney that can be enacted in the event you lose mental capacity or if you are appointed as one for a relative or close friend.
What is a Power of Attorney?
A Power of Attorney (POA) is a legal document written up by one person, called the ‘principal’ that enables another person to make decisions concerning the principal’s finances, bank accounts, shares, property, and other assets. A POA does not have to be a legal professional and can be anyone who is over the age of 18 who can act in this capacity such as a close friend, relative or professional adviser.
What are the different Powers of Attorney?
There are two types of powers of attorney:
- General Power of Attorney (GPOA) and
- Enduring Power of Attorney (EPOA).
A GPOA is an individual who is appointed to make both financial and legal decisions on the principal’s behalf which is in place while you still have the ability to make your own decisions. This kind of attorney may be used in the event of unforeseen circumstances which temporarily cause the principal to lose capacity due to an injury or illness.
An EPOA, is one which is in place over a long-term period and continues to operate when the principal no longer has the mental capacity to make their own financial and legal decisions. Unlike a GPOA which ceases to be effective once the principal can no longer make their own decisions, an EPOA is called on to act on the principal’s behalf but must be put in place before this occurs.
It should also be noted that this is different to an Enduring Guardian which is in place to make healthcare, lifestyle and medical decisions for the principal.
What does an EPOA do?
The extent of an EPOA’s power over your decisions is dependent on how much power you wish to give them. When you draft and submit the legal documentation which gives effect to an EPOA you may impose some conditions or restrictions on the nature or kind of decisions they can make in relation to your financial and legal affairs. The powers of your EPOA could include:
- Signing legally binding documents
- Operate bank accounts in your name,
- Pay bills,
- Buy and sell real estate,
- Manage your investments.
The imposition of some limits as to what decisions your EPOA can make is something that all individuals should consider as any decisions they make in their capacity as your EPOA are legally binding on you.
However, it is also important to consider that a person that acts as your EPOA also has a legal obligation to act in your best interests. Under NSW legislation an attorney must:
- Keep the attorney’s money and assets separate from the principal’s money and assets (unless the two individuals are joint owners)
- Keep proper accounts and records of how the attorney manages the principal’s money and assets.
The NSW Trustee & Guardian has the power to enquire into how your finances or legal affairs are being managed and may require these records to be produced in the event an EPOA has not acted in compliance with their duties and responsibilities.
At what age should I get an EPOA?
The best time to have an EPOA put in place is before you need it. It is too late once you have lost mental capacity to put an EPOA in place. For it to be an effective and legally binding, the principal must be able to fully understand what they are signing and thus must occur before they lose the capacity to do so. An EPOA is not rendered effective until all legal documentation has been effectively drafted and the attorney accepts their appointment to this role. It is important that whoever you appoint to be your EPOA is familiar with your financial affairs, needs and wishes as well as the particular decisions they may have to make when acting in this capacity.
Why is an EPOA important?
It is essential to have an EPOA in place as you do not know when an unforeseen life event may occur that could render you unable to manage your own financial and legal affairs. Having one in place will not only give you peace of mind that you will have decisions made in your best interest but will also save your loved ones the stress of having to apply to the relevant State or Territory authority to have one put in place when you have lost mental capacity.
How do I pick the right person?
Now you understand the importance and effect of having an EPOA in place, you should now consider how you are going to choose who to appoint as your EPOA. This is an important decision and should not be made under pressure or be influenced by others. To combat the risk of children or other family members trying to make a gain from overseeing your affairs, you may wish to appoint more than one EPOA whereby they must agree or vote by majority to give effect to their decisions. Below are some key factors that should be taken into account when making this decision:
- Your EPOA should not have any conflicts of interest,
- You can appoint a public Trustee/Guardian if you are unable to appoint a family member,
- Your EPOA should be highly trustworthy and live close enough to actively manage your affairs,
- They must be competent enough to deal with financial and property related matters and keep accurate records and
- Consult with a lawyer independently before appointing your EPOA.
Although appointing an EPOA may appear to be a daunting and onerous decision, it is one that will ensure that your interests remain paramount in the event you lose mental capacity to make these decisions yourself. If you would like to discuss your current EPOA in place or would like to discuss putting one in place, you can click here to speak to an EPG Wealth adviser.
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