Having a power of attorney and an enduring guardianship is the basis of a solid estate plan. However, you hear so many horror stories about people abusing their position as attorney. Is it still a wise idea?
In this article, experienced estate planning lawyers from Taree, Tweed Heads and Tamworth present a series of case studies from our own practice.
We discuss the importance of a power of attorney and an enduring guardianship, the pitfalls of not having them, and the ways you can avoid starring in a horror story of your own.
What is a Power of Attorney? Why is it important to have one?
Many people think just having a will is sufficient estate planning. As lawyers who work in wills and estates every day, we always advise our clients also to have a power of attorney and an enduring guardianship.
A PoA is a legal document in which you appoint a person or people (your attorney) - or a trustee organisation - of your choice to manage your financial and legal affairs.
An attorney, in this case, does not necessarily mean a lawyer or a solicitor. You can appoint whoever you want - a family member, friend, or a solicitor or the NSW Trustee and Guardian (if you are in NSW).
What is an Enduring Guardianship?
An enduring guardian is the person or persons you legally appoint to make decisions concerning your health and living arrangements in the event you can longer make such decisions yourself.
They do not and cannot make financial decisions for you. Just as when making a PoA, you can appoint whoever you want as an enduring guardian, and it can be the same person (or people) you have chosen as your attorney.
Whereas a will comes into effect only when you die, a PoA and an EG are only effective while you are alive.
Case study #1 - Mother lacks capacity to make Power of Attorney, daughter empties bank account
We had a client who was showing signs of dementia. At the time, one of her three children asked us to prepare a PoA for their mother, which would enable her to make financial decisions on behalf of her mother.
As lawyers, we have an obligation to ensure the client is aware of what a PoA is and we did not feel the mother had the capacity to understand. (For more information, please see What is testamentary capacity? A basic guide.)
We requested that the daughter ask her mother's doctor to write a letter regarding her capacity. After assessing her, the doctor agreed that she did not have capacity.
So the daughter went to the courthouse with her own PoA, which she had downloaded from the internet, and had the registrar at the Local Court sign it. Eventually our client passed away.
The children asked us for her will. During probate, we found that the bank account of the deceased had been stripped bare. The bank records showed a series of payments benefiting the daughter who had asked us to make the PoA. Over $120K had been paid to this person, for expenses including plastic surgery and a new car.
The siblings only found this out a year later when their mother died. The daughter who had used the money argued that the mother had gifted the money to her. Ultimately, we were able to adjust the distribution of the estate, so that once the proceeds came through, the money was distributed to the other two children.
What happens if I don't have a Power of Attorney or Enduring Guardian?
Some people will never need a PoA or an EG - it only becomes essential in the event you become incapacitated and can no longer make some or any decisions regarding the management of your affairs or your health.
The problem is no one knows if this will happen to them, which is why we always recommend having a PoA and an EG as part of your estate planning. You cannot make a PoA or EG after you become incapacitated.
If you are a resident of NSW and become incapacitated without having a PoA or EG, your family or loved ones will need to apply to the NSW Civil and Administrative Tribunal (NCAT) to become your financial manager or apply for a guardianship order. This can be time-consuming and stressful, particularly if they are already dealing with your declining health.
NCAT will first assess your capacity to make your own decisions and then make a determination following a hearing. NCAT will decide whether or not the person applying to manage your affairs is suitable.
In such situations, there is a danger that NCAT may end up appointing someone you or your loved ones would never would have wanted as your attorney if you had a choice. This is particularly the case if there is a dispute among family members.
The other option is that the NSW Public Guardian may be appointed to manage your affairs.
A financial manager appointed by NCAT will be supervised by the Public Trustee.
Case study #2 - Absence of Power of Attorney causes unnecessary stress, expense and delay in selling house
An elderly client had a wife suffering from dementia. He became immobile and unable to live alone, and so wanted to sell their home to move into aged care.
However, as he had never been appointed as his wife's attorney, and she was unable to sign documents due to her dementia, the husband could not sell the house.
The elderly man had to apply to NCAT to get authority to sell the house, which was very time-consuming. It took close to nine months to get the order from NCAT, then the subsequent approval from the Public Trustee as financial manager to get consent to sell the house.
In the end, it took unnecessary time and expense to sell the house, not to mention the stress for our elderly client, which could have been avoided if there had been a PoA in place.
Who should I appoint as my Attorney or Enduring Guardian?
Choosing who to appoint as your attorney or enduring guardian is a very important decision.
You need to ensure you trust that the person you choose will act in your best interests, and that they will make the necessary decisions competently.
In selecting your attorney or enduring guardian, you should also think about their age and future capacity, given they will likely not be called upon to act for you until some time in the future.
It is also important to discuss what is involved with the person you are appointing and ensure they are comfortable to take on the role and handle your affairs with objectivity. Some people do not want this responsibility.
Case study #3 - Medical decisions in accordance with faith
A client who was a Jehovah's Witness requested that her enduring guardian be changed, as she did not trust that the person she had originally appointed would make medical decisions on her behalf that aligned with her faith, should the need arise.
She instead appointed someone who would obey her directions in accordance with her faith, which included refusing blood products.
Appointed Attorney should act in your best interests, not their own
People often choose their children to be their attorney or enduring guardian. While the vast majority act in the best interests of their parent, there have been times when children make decisions that seem more about protecting their future inheritance, rather than about protecting the interests of the parent who appointed them. (For more information, please see Elder financial abuse - confronting a hidden epidemic.)
Often this is not malicious, but more a case of thinking that the money will come to them sooner or later through the estate, so the decisions they make now should safeguard that eventuality. Such children justify their decisions to themselves and others by saying "it's what my mother or father would have wanted if they still had capacity".
We have seen matters in which, for example, a person has needed to go into a nursing home and in order to have the capital to do so, was required to sell their house. The children, acting as their attorneys, hid the house from the nursing home by transferring its ownership to themselves.
As the estate would eventually be theirs, why shouldn't they protect it now? Malicious or not, this is - of course - a breach of their duties. An attorney is legally required always to act in the best interests of the person who appointed them.
Case study #4 - Daughter's PoA and EG removed for not acting in mother's best interests
An elderly lady lived with her daughter in the mother's home. She should have been in full-time care, as she was often suffering falls and having multiple visits to hospital.
On the fourth visit, the Aged Care Assessment Team told the daughter to arrange aged care for her mother, or else they would. The daughter refused, as it would mean having to sell the house.
The elderly lady suffered another fall, so the team made an application to the Queensland Civil and Administrative Tribunal (QCAT) to take over the mother's affairs, so they could put her in care.
Even with a power of attorney and an enduring guardianship in place, if as an attorney or guardian you are not acting in the best interests of the person who appointed you, an application can be made by another party to the relevant tribunal to remove you from the role.
Should I appoint one or multiple Attorneys and Enduring Guardians?
You can appoint more than one attorney and enduring guardian, and this can be a good way to ensure there are checks and balances on decisions being made.
Like being an executor of an estate, being an attorney or enduring guardian can be stressful for one person. Making important financial, legal or medical decisions on behalf of another person can be overwhelming, as well as time-consuming.
Sharing the role between two or more people might lessen that burden for them.
Making health and medical decisions on someone else's behalf is never easy. This is why we often advise clients who are appointing more than one person to choose people who share the same values, to lessen the chance of disagreement on difficult decisions.
We also recommend that you communicate to those you appoint what you would like to happen in certain circumstances.
It is often a good idea to include these wishes in the actual document, or as a letter for other family members or close friends to read if the situation arises, asking them to respect the decisions of the enduring guardians, and explaining that that they are following your wishes.
Case study #5 - Heated disagreement between siblings over switching off life support
One of our clients had appointed two of his four children to be his guardians. When the father became very ill in hospital, the appointed guardians wanted the life support turned off, as they believed that was what their father would have wanted.
The other two children were devastated with this decision and with the doctors. Security ended up being called in and it was a very traumatic time for all parties.
Power of Attorney and Enduring Guardianship allow for flexibility in decision making
One of the great things about powers of attorney and enduring guardianship is their flexibility - you can decide how you want various attorneys or guardians to work together or alone on decisions for different circumstances.
As an example, you could nominate that two or more attorneys make decisions in a variety of ways:
- Severally - any of them may make a decision on their own
- Jointly - all must agree
- As a majority - if there are three or more
- Other - where you describe how you want them to make decisions
Appointing multiple Attorneys and Guardians increases chance of disagreements
Of course, while appointing more than one attorney or guardian might lessen the chance of decisions being made in a particular appointee's interests, it does create an opportunity for disagreements to arise.
We often hear from clients complaining about decisions being made by the other attorney - particularly if they were appointed severally and can sign off on decisions individually.
In such matters, if the situation cannot be resolved, it will be escalated to NCAT to hear the dispute and decide whether the person is correctly administering their role. This can be time-consuming, stressful and take an emotional toll on everyone.
Case study #6 - Brother and sister appointed severally as Attorneys; brother spends $40K on new car
One of our clients had made a PoA appointing her brother and sister as her attorneys, but to act severally (ie separately). This meant that financial decisions could be made by either one of them independently.
When our client lost capacity and the PoA came into effect, the brother transferred $40K to himself to buy a new car.
The other sister found out and came to us to find out what she could do. We wrote to the brother, requesting that the money be returned, which he refused to do.
At this time in NSW, there were no legal ramifications for abusing the attorney status. The only recourse available was to go to NCAT to get an order saying the brother had done the wrong thing, which would not result in criminal proceedings anyway.
Besides this, the money had been spent and the brother had no means to repay it.
To resolve the problem, we had the sister who had been appointed as attorney change the will of the incapacitated client by applying for a Statutory Will, which lets you change or make a will on behalf of someone with no capacity.
In this new will, we adjusted the provision to be made to the brother, so that he received his fair share of the estate, minus the amount he had spent on the car.
He was also subsequently removed as attorney.
How can I ensure future decisions will be made in my best interests?
While nothing is foolproof, there are certain recommendations we make to our clients regarding powers of attorney and enduring guardianship.
First and foremost, only appoint a person or people you trust implicitly. You should be as confident as possible that whoever you appoint will be willing and able to make decisions for you in your best interests.
Secondly, if you are seeking to put limitations in your PoAs and EGs to limit any damage that could be done, we recommend always seeking legal advice.
PoAs and EGs have the flexibility to contain all types of limitations - for example, having certain attorneys responsible for certain decisions, or limiting their access to certain bank accounts.
While this sounds great in theory, it is essential that these limitations are drafted by an experienced lawyer, to ensure they are as watertight as possible.
Ultimately, even though powers of attorney and enduring guardianship are important documents and ones we always recommend as part of an estate plan, if you don't have someone in your life that you trust to make such decisions, you are probably best off not appointing anyone.
NCAT can make those decisions on your behalf and in your interests if the time ever comes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.