Powers of Attorney – a double-edged sword

Most people have heard of Powers of Attorney and how useful they are in times of ill health or advanced age.

Indeed many aged care facilities will require the resident to have both a Power of Attorney (POA) and Enduring Guardian when moving into their facility. However, giving someone a Power of Attorney is important for anyone that owns property jointly with someone else, regardless of age or health.

A Power of Attorney is a powerful tool – it enables someone else to step into your shoes and deal with your assets, particularly money and property. Someone with POA can sell your property, use your money and make decisions about your affairs without having to seek your consent.

It is clear, therefore, that when considering who to give POA to, you need to think carefully about the person or people you chose to appoint, their relationship with you, and relationship with each other, such as siblings who may or may not get on, for example.

A person with POA owes fiduciary duties to you. These include a duty to act honestly, a duty to keep their money separate from yours, and to ensure there’s no conflict of interest.

However, increasingly there are cases coming through the Supreme Court in recent times where these trusted persons have acted in their own interest and abused their Power of Attorney, with the effect of selling or giving away the assets of the person so their estate is significantly eroded.

In one case the person with the POA was the second wife. When her husband lost capacity and moved into aged care, she acted to sell the property (which was only in her name), used the proceeds of sale to go on lavish holidays and gave her children (who were not the children of the incapacitated person) the money to purchase a property outright. She also paid for the construction of a granny flat on her daughter’s property – all this when her only source of income was the aged pension.

After the principal passed away his children were concerned that his assets had disappeared. They commenced proceedings and were ultimately successful. The Court found that the wife had acted in breach of her fiduciary duties, and she was no longer able to receive any benefit under the will.

Another recent case was where the husband had made a will leaving a farming property to his son. After he lost capacity his wife used the POA to transfer the property to the daughters, thus removing the asset from the husband’s estate and preventing the gift going to the son. This case is currently under appeal.

It’s important to know the breadth of the Powers of an Attorney and the implications of the different options you have when making a POA. A person holding POA is not permitted to receive a benefit from any decision they may make. However in NSW you may grant express permission for your POA holder to receive a benefit or to confer benefits on a named third party. These benefits are limited under the legislation to reasonable living and medical expenses of either the attorney or the third person, but these are very broadly defined.

You may also elect to grant a gifting power to the POA holder which enables them to give gifts to others. Generally speaking these should be limited to the type of gifts you are used to giving when you have capacity and to the people you would normally give gifts to, however these can be broadly interpreted. These additional powers should not be given lightly.

A POA is a powerful tool and you need to understand the consequences to safeguard against the power being used against you or to disinherit your family. One way of safeguarding against abuse is to include more than one POA holder and requiring them to act jointly.

However this should only be done if you believe that the two people can work together and will not be prevented by distance, family relationships or disharmony.

As one of the recommendations arising from the Law Reform Commission Report into Elder Abuse, the Federal Government has committed funds to establishing a national register of POA in the latest Federal Budget.

Leah Sewell is a lawyer with 17 years’ experience in practice in Cherrybrook and Pennant Hills before opening a new practice in Beecroft three months ago. Her areas of expertise are in estate planning, estate management and disputes, elder law and property including conveyancing. Tel: 9484 1165

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