6 quick answers on appointing an enduring Power of Attorney
By Phillip Richards
Courtesy of Cuffelinks
There may be times when, perhaps due to family illness or incapacity or if someone is working abroad, someone else needs to hold an enduring power of attorney (POA) over a person’s financial and legal affairs.
A POA is essentially a document that will legally appoint someone to act on another’s behalf. This arrangement can be useful as people age and struggle to manage their financial affairs, particularly if they start to lose their mental capacity.
What is mental capacity?
To be mentally capable is to be able to fully understand any decisions that need to be made, which includes the reason you are making a decision and the outcome of that decision. It also means having the ability to communicate or to make decisions at the time they need to be made. This may include the sale of property or shares in order to pay for medical bills, or aftercare service in case of illness.
What are the differences between general and enduring POA?
A general POA gives another person control of your financial matters but only for a certain period of time such as an extended overseas visit or stay in hospital. If during this time you become incapacitated, then the general POA documentation becomes invalid.
On the other hand, an enduring POA gives someone such as a financial adviser control of your financial matters for an indefinite period if you are not able to make the right decisions due to mental or physical incapacity. Therefore, if there were changes, for example, to government policy that affected your superannuation and you had not nominated a POA with relevant financial wealth management expertise to manage your affairs, then it could affect your savings, income and potentially your wellbeing.
Who can be nominated as a POA?
The person appointed must be over 18 years-of-age and should not have an interest or stake in the financial affairs of the individual who appoints them. Having a family member is difficult as there may be a conflict of interest when it comes to financial matters. It needs to be someone in whom you have total trust and confidence, and also someone who is financially literate.
If you choose a close friend to undertake this role, it will be important they meet with your financial adviser to ensure they have a full understanding of the state of your financial affairs in case they take over decisions on your behalf.
What financial decisions can a POA make?
Enduring POA for financial matters allows the attorney to make decisions that are related to financial or property matters. This could include day-to-day decisions regarding personal finances and investment portfolios, payment of bills, management of property or completion of tax returns. This is why it is important they understand your financial needs, now and in the future.
Who can draw up enduring POA documentation?
It is always best to ask a solicitor to complete any form of legal documentation. There have been cases highlighted by Alzheimer’s Australia in which enduring POA agreements were used to the detriment of vulnerable adults.
Financial institutions are also looking carefully at POA agreements and will usually require some form of validation, so avoid the DIY POA kits from the internet.
Should the attorney receive payment for this role?
Expenses incurred by those acting as an enduring POA or other fees can be agreed, and you can authorise the attorney to pay themselves a reasonable amount for undertaking this role. Again, bearing in mind if there could be questions or disputes raised at a later date by family members, the attorney must keep records and account for all they spend.
It may be worthwhile appointing a professional organisation or individual to act on your behalf. This will likely incur fees but may cause less hassles in the long run.
Whether you are planning ahead for yourself or managing the affairs of elderly parents or relatives, it is always best to talk to a financial adviser and share any concerns. We have seen many instances of complications when clients have not appointed a POA prior to their circumstances changing.
Phillip Richards is the Director and Financial Adviser at Endorphin Wealth Management. This article is general information and does not consider the circumstances of any individual.