Power of attorney: six things you need to know
With advancements in medicine and constant improvements to Australia’s healthcare delivery, Australians are living longer. According to the Australian Institute of Health and Welfare, one-in-six Australians are aged 65 or over, and by 2066, it is predicted this age demographic will make up 21-23% of our total population.
As the population of older Australians increases, it is a sad reality that more Australians will lose capacity in their final years due to chronic illness and disorders such as dementia. In turn, this will mean more relatives will someday need to exercise a power of attorney and be responsible for making financial and medical decisions for a loved one that has lost capacity.
A power of attorney is created when one person (the principal) appoints and authorises another person or an organisation, such as a trustee company (the attorney), to legally act and make decisions on their behalf. In most cases, a power of attorney is given when, due to illness or disability, the principal is unable to represent and or make decisions themselves. Appointed attorneys can make decisions for the principal across a range of matters, including property, finances, and medical care.
In this article, we look at six things Australians should know about powers of attorney.
1. Know the correct terminology
I often see confusion in my own clients around distinguishing between a general power of attorney, enduring power of attorney, and an attorney.
A general power of attorney is a legal document where the principal appoints another to act on their behalf in relation to different decisions around key assets, from property to their bank account. This can commence or be revoked at any time, and will cease effect if the principal dies or loses mental capacity to make their own decisions.
An enduring power of attorney is a legal document that sees the powers of an attorney continue, even when the principal is unable to make decisions for themselves due to accident or illness that results in loss of capacity. Typically, an enduring power of attorney will end when either the attorney or the principal dies, or the attorney loses capacity themselves.
A loved one who has been appointed in a general or enduring power of attorney document is simply known as an attorney. It is important to note that in Australia, this definition of attorney differs from the way it is used in the United States, where lawyers are referred to as attorneys.
2. A principal may appoint more than one attorney
Families should be aware that it is possible for more than one person to be appointed as an attorney, and the principal may allocate certain responsibilities to each one. For example, one child may be appointed a financial attorney, while another can be appointed a personal attorney to make healthcare decisions.
Throughout my career, I have often seen principals split responsibilities by gender; the eldest son is appointed to look after their parent’s financial affairs, whilst the daughter is entrusted with healthcare decisions. Thankfully these trends are now changing. Above all else, parents must seek to appoint attorneys who are both capable and trustworthy.
3. It is possible to appoint an alternative attorney
Life has its unpredictable moments. In my profession, it is surprisingly common to see client cases where the principal’s attorney passes away or loses capacity themselves.
These situations highlight the importance of a principal naming an alternative attorney who will take on the initial attorney’s responsibility if the initial attorney dies, loses capacity themselves, or their powers are revoked.
Alternative attorneys must act in the same manner as the initial appointed attorney unless the power of attorney document states otherwise.
4. It is not always easy to renounce power of attorney
We all know people’s circumstances change over time. So, what happens if you are somebody’s attorney but can no longer manage the responsibility?
If you have an enduring power and the principal still has mental capacity, or you have been appointed a general power, you can resign in writing at any time. If you are an enduring power and the principal has lost capacity, it becomes much more difficult. In the latter case, attorneys can only resign if the principal appointed another attorney or named an alternative attorney, and the document allows the alternative attorney to step in in those situations. If no alternatives exist, or the document does not allow an alternative attorney to step in unless the initial attorney has passed away, you will need to be granted leave by the relevant guardianship board.
For this reason, it is critical that attorneys remain well-prepared and fully understand their responsibilities while the principal still has decision-making capacity.
5. Attorneys are not remunerated
Despite the attorney undertaking key day-to-day tasks on behalf of the principal, an attorney is generally not entitled to any remuneration unless specifically authorised by the power of attorney document.
6. Always seek professional advice
The role of an attorney is important and comes with a great deal of responsibility. As such, ensuring these powers are given to the right person remains critical. Appointing the wrong attorney can leave elderly Australians vulnerable to numerous forms of elder abuse, including neglect, theft or financial abuse. It can also lead to conflict and place significant strain on family relationships. In our profession, we are increasingly having clients request an independent financial attorney instead of a family member to ensure that potential family conflicts are minimised, and the family can then focus on the healthcare and personal decision-making choices of the principal.
Planning ahead, having open family discussions and obtaining help from a legal professional or trustee services provider will ensure all arrangements being made are in the best interests of the principal. In my career as a Wills and Estates accredited specialist, I have seen the enormous difference this can make.