The appointment of attorneys pursuant to an Enduring Power of Attorney is an important part of a clients planning and goes hand in glove with other aspects of estate planning. There are good reasons for appointing someone to make decisions on your behalf in the event that you are no longer able to do so. However, there are inherent risks associated with such appointments and unfortunately as experienced lawyers in this area, we often come across clients who have appointed an attorney without fully appreciating the extent of the power which they are giving their attorney and the importance of ensuring that the attorney which they choose is the right choice. On the other side of the coin, we often find that attorneys appointed pursuant to an Enduring Power of Attorney do not appreciate the extent of their fiduciary obligations to the person making the appointment (the Principal) and the limits on their powers.
In this article, we take a look at what an Enduring Power of Attorney is and what the obligations are. We also explore what constitutes abuse of the power and how a power of attorney can be revoked or how an attorney might otherwise be removed.
What is an Enduring Power of Attorney?
Generally speaking, there are two types of Powers of Attorney. A General Power of Attorney and an Enduring Power of Attorney. In a General Power of Attorney, the Principal gives the attorney power to do something on behalf of them (usually related to financial matters) because they are not available to do it. For example, someone may have gone overseas and then need someone to be able to sign a document while they are away. Although, that’s less applicable these days with technology as it is. The attorney can exercise the power immediately and there is no requirement for the attorney to establish a lack of capacity on the part of the Principal.
On the other hand, an Enduring Power of Attorney continues (and often only commences) to operate in circumstances where the Principal has lost cognitive capacity to do whatever is required to be done. So, their decision-making capacity is impaired, and they can no longer do it.
An Attorney appointed pursuant to an Enduring Power of Attorney is entrusted by the Principal with significant power. The attorney can literally do anything that the donor could do for themselves if they had the capacity to do it. However, in exercising the powers given to them, the attorney has what is called a ‘fiduciary obligation’ to the Principal and must only act in a way which benefits the Principal unless the document appointing them specifically empowers them to do things which benefit someone other than the Principal.
There are a number of specific obligations that an attorney has to their Principal. However, the overriding principle is that the attorney must avoid transactions which result in conflict between their duty to the Principal and their own interest. They must also avoid transactions where there is a conflict between the Principal’s interests and the interests of one of the attorney’s relatives, business associates or friends.
As mentioned above, an attorney must only engage in transactions which benefit the Principal unless the document appointing them specifically empowers them to do things which benefit someone other than the Principal. For example, let’s assume that a husband appoints his wife as his attorney pursuant to an Enduring Power of Attorney and then loses capacity. The wife will have power to make payments on her husband’s behalf. Let’s further assume that the wife pays the home electricity account which is in their joint names from her husband’s bank account. So, in this circumstance the payment is not just benefiting the Principal it is also benefiting the attorney as well and unless there is provision in the Enduring Power of Attorney document expressly allowing for this to occur, the wife would be in breach of her fiduciary obligations as attorney. Accordingly, careful attention needs to be given when putting in place an Enduring Power of Attorney to ensure that it is fit for purpose and it is not uncommon for specific provisions to be included which allows husbands, wives and families to continue to operate as they normally have. This can include giving the attorney the power to do things which benefit the spouse and children of the Principal or to continue to make gifts that the Principal would normally make such as birthday presents, Christmas presents or donations to charities that the Principal had regularly benefited. Importantly, unless specific provision is made, transactions which benefit anyone other than the Principal are forbidden.
Other factors that may lead to abusing a power of attorney
Having impaired decision-making does not necessarily mean that a person is not capable of expressing their wishes and preferences. So another guiding principle in performing the role as an attorney, is that the attorney is required at all times to do their best to find out what the wishes of the Principal are, and act in accordance with those wishes.
For example, the attorney should not, even though they have the power to do so, sell the family home if that is not in accordance with the Principal’s wishes, unless the sale of the home is required to accomodate the best interests of the Principal. This also applies in relation to non-financial decisions, such as facilitating access to family members and relatives. A Principal’s wish to have access to family members and relatives is something that the attorney is required to facilitate and excluding other members of the family, where that is not in accordance with the individual’s wishes can constitute an abuse of their obligation as an attorney.
Revoking a Power of Attorney and removal of an attorney
A Principal who does not have impaired decision-making capacity is free to revoke their Enduring Power of Attorney and put in place a new Enduring Power of Attorney, at any time. This may be because of a change in circumstance or alternatively if there is a falling out between the Principal and the Attorney. The Power of Attorney is revoked by the Principal signing a Revocation or signing a new Power of Attorney.
The situation is a little more complicated in circumstances where the Principal has lost capacity. Sadly, we are often requested to provide advice in circumstances where a Principal has lost capacity and their attorney has fallen short of their obligations and/or abused the rights of the Principal. In most cases our client will be a close relative of both the Principal and the Attorney. For example, an attorney might instruct the residential care facility where the Principal is living not to let a sister, brother, child etc. visit the Principal. Or, a relative of the Principal may become concerned about the way in which the attorney is managing the financial affairs of the Principal. If such concerns exist then there is a tribunal process in each State and Territory that enables an interested party to make an application to the Tribunal, including for an order removing the attorney. In the ACT such applications are made to the ACT Civil and Administrative Tribunal (ACAT). In New South Wales the application is made to NCAT; in Victoria to VCAT and in Queensland to QCAT. There is different legislation in each State and Territory governing such applications, however in general terms each Tribunal is given power to make orders regulating the actions of the attorney and/or removing and replacing the attorney with a guardian and/or financial manager in cases where there has been a breach or abuse of the attorney’s powers and obligations.
How to complete an Enduring Power of Attorney
While Enduring Power of Attorney forms are often seen as a ‘tick a box’ exercise, having an experienced lawyer as part of the process can make all the difference. An experienced lawyer will not simply have you sign in all the right places, they will step you through the complete process, ensuring that proper consideration has been given to the choice of the proposed attorney; ensuring that the powers provided to the attorney are appropriate and that any relevant conditions and limitations on the power are included; and importantly, ensuring that both the Principal and the attorney are aware of the rights of the Principal and the obligations of the Attorney.
Related: How to avoid disputes about your will
The DDCS wills and estate planning team are highly experienced and specialise in helping people navigate issues like these. To discuss your circumstances, phone our team on (02) 62127600 or fill in the contact us form and our team will be in touch.
