In my last article “Death can be expensive for relatives left behind” appearing on 12th May 2011, I emphasised the importance of making a Will and discussed the consequences of not having one. I also touched on another important document that can ensure peace of mind, namely the Power of Attorney.
This document, or ‘power’, is both extensive and wide-ranging. It allows you to appoint someone you trust to have the authority to access personal finances (such as business accounts, personal accounts and superannuation) and handle other serious matters (such as buying/selling property). This appointed person is known as an ‘Attorney’. Here are some examples of why it is important to have an Attorney:
1. You may be a small business owner planning a remote overseas trip. Without access to your bank accounts small problems like unpaid creditors or urgent repairs can become much larger hurdles. An Attorney with access to your business accounts can overt these problems.
2. A sudden accident or illness that leaves you incapacitated or in a coma would also render you helpless to make important decisions on issues affecting you and your loved ones.
3. Should this state of incapacity or illness be long-term then it is important you have an Attorney to ensure your ongoing care is maintained.
There are two types of Powers of Attorney. The first is a General Power of Attorney, which in my opinion is limited in its usefulness. The second is the Enduring Power of Attorney. The difference between these two powers is that the General Power of Attorney is unenforceable in the event of your mental incapacity. Since this is one of the main reasons for appointing an Attorney in the first place, I think you will agree that the Enduring Power of Attorney is a far more appealing option.
People can be less inclined to appoint an Attorney because they often assume that their spouse or children will automatically take control of their affairs in the event they are rendered physically or mentally incapacitated. This is not the case. Where there is no Power of Attorney in place, the Guardianship Board of South Australia may intervene and appoint people of their choosing (such as the Public Trustee) to manage your legal and financial affairs. This is a scenario that does not sit comfortably with most people and further illustrates the importance of this document.
People you may choose to appoint as your Attorney may include:
1. A spouse;
2. A child (18 years or older);
3. Any other relative;
4. A solicitor who understands the role of an Attorney; or
5. An accountant who knows your financial position well.
You may appoint any one of the above or alternatively you may wish to appoint a combination. For example, a parent may decide to appoint his 21 year old son (or daughter) together with his accountant or lawyer who can help guide his son (or daughter) and oversee any decisions made. If an outside party is also appointed it limits the possibility of abuse of the Powers of Attorney.
In the case of the Enduring Power of Attorney you must decide whether you want your Attorney to have the power to act immediately or whether you want your Attorney to act only in the event that you suffer physical or mental incapacity. In any event, your Attorney needs to be someone you absolutely trust and who has your best interests at heart.
However, should you wish, it is possible to place restrictions on your Attorney in order to limit their control over certain aspects of your personal affairs. For example, you may restrict your Attorney to transactions involving a maximum of $10,000 and withdraw the ability to purchase property on your behalf.
Further safeguards lie in the Powers of Attorney and Agency Act (SA) 1984 which outlines the powers of the South Australian Supreme Court in dealing with an Attorney who has acted improperly. Your Attorney must act with reasonable diligence to protect your interests otherwise he will be liable to compensate you.
The Enduring Power of Attorney is a valuable document to have in place as it can provide you with the knowledge that your legal and financial affairs will still be taken care of, by people of your choosing, in the event that you are unable to attend to them personally. It is crucial however to choose the right people as an important safeguard. When put in place along with its natural counterpart, the Enduring Power of Guardianship, and a properly drawn Will of course, you will have done all you can to plan for the future.
The Enduring Power of Guardianship is a topic for another day.