The usefulness of Enduring Powers of Attorney cannot be underestimated, and should be considered as part of any estate or business planning exercise.
But what is an enduring power of attorney, how are they made, and should you agree to be an attorney?
This article sets out the basic framework for the instrument. In a future article we will give examples of where things can go wrong.
What is an Enduring Power of Attorney?
An Enduring Power of Attorney is a document whereby an adult (called “the principal”) authorises one or more people (“eligible attorneys”) to do things in relation to certain financial or personal matters for them, those being things that the principal could do by an attorney if they had capacity when the power is exercised. In Queensland, Enduring Powers of Attorney are created under the Powers of Attorney Act 1998 (“The Act”).
Unlike a General Power of Attorney, an Enduring Power of Attorney continues to be effective if the principal suffers from impaired capacity for the matter (eg is temporarily or permanently unable to make the decision for themselves). Also the powers are to some extent identified as “financial matters” and “personal matters”, with different people quite often being appointed for the respective categories.
Who can be the attorney?
To qualify as an eligible attorney, by section 29 of the Act, the attorney must be a person who:
- Has capacity for the matter appointed and who is at least 18 years old;
- Is not and has not in the previous 3 years been a paid carer for the principal;
- Is not a health provider for the principal;
- Is not a service provider for a residential service where the principal is resident;
- Is not (where the power is for financial matters) a bankrupt or has taken advantage of the laws of bankruptcy.
The Public Trustee or a trustee company under the Trustee Companies Act 1968 may be appointed, and for personal matters, the public guardian may be appointed.
The power of attorney can be in respect of financial matters (ie relating to the principal’s financial or property matters) and for personal matters which is defined as being a matter – other than a special personal matter or a special health matter – relating to the principal’s care including their healthcare or welfare. Schedule 2 to the Act sets out examples of what a personal matter might include.
A special personal matter (ie something that cannot be done by an attorney) is a matter that is listed in section 3 of Schedule 2 to the Act, including matters such as making or revoking a will, making or revoking a power of attorney, voting, and a number of other matters of personal significance. Special health matters (ie which an attorney cannot agree to for the principal).
Capacity to make an Enduring Power of Attorney
By section 41, a principal has the capacity to make an Enduring Power of Attorney only if they are capable of making it freely and voluntarily, and understand the nature and effect of the power of attorney, including understanding that:
- They can specify or limit the power to be given and instruct the attorney about the exercise of the power;
- When the power begins (a financial power can be triggered at any time, whereas a power for health matters can only take effect if the principal’s capacity is impaired);
- Once it begins, the attorney will have full control over the subject matter;
- The principal can revoke the power of attorney at any time while they are able to make another one;
- The power continues even if their capacity is impaired;
- If they are unable to revoke the power of attorney (ie because they have impaired capacity), they are unable to effectively oversee the use of the power.
This brings about important issues concerning powers. Sometimes principals make enduring powers of attorney to commence immediately, for various reasons. This means that the power of attorney exists while the principal remains able to do the things for themselves. If this occurs however, the attorney should not act inconsistently with the wishes of the principal while they have capacity.
But then there can be questions as to whether the principal has lost capacity, and if that capacity was lost, then there can be questions about whether or not the principal regained capacity. If the attorney is only to commence when the principal loses capacity, then in most cases, the power will cease if and when the principal regains capacity. Attorneys should be careful to ensure that there is evidence that the power has commenced, as they will be acting without authority if the attorney only commences when the principal loses capacity, and evidence demonstrates that capacity was not lost.
Revoking or ending an Enduring Power of Attorney
The power of attorney can be revoked by the principal at any time if the principal has the necessary capacity to make a new power of attorney for the particular power.
Revocation of an Enduring Power of Attorney must be in the approved form, except to the extent that the power of attorney gives power for a health matter, which need not be an approved form.
Revocation is also effected by:
- A later Enduring Power of Attorney, to the extent that it is inconsistent with the first power of attorney, for example by giving a power to a different attorney – section 50 of the Act;
- The death of the principal;
- The marriage of the principal, if it gives power to someone other than the spouse (unless there is a contrary intention expressed in the document) – sections 52 and 52A of the Act;
- The divorce of the principal, to the extent that it gives the power to the former spouse – sections 53 and 53A of the Act;
- If the terms of the power itself provide for its revocation, as an example if it is created for a specific term or specific purpose which is fulfilled;
- If the attorney resigns – section 55 of the Act;
- If the attorney becomes a person who has impaired capacity for the matter – section 56 of the Act;
- If an attorney for a financial matter becomes bankrupt, insolvent or (if a company) is wound up or dissolved – section 57 of the Act;
- The death of the attorney – section 58 of the Act;
- if the attorney becomes a paid carer or health provider for the principal, the enduring document is revoked to the extent that it gives power for a personal matter – section 59 of the Act;
- if the attorney becomes the service provider for a residential service where the principal is resident – section 59AA of the Act.
When an attorney’s power ends, if the attorney was a joint attorney for the matter, then the remaining attorney or attorneys may continue to exercise the power.
Form of Power of Attorney
There are prescribed forms for the power of attorney in Queensland, however documents validly prepared and executed in another state will be effective to the extent that it gives powers that could be validly given under the Act.
To comply with formal requirements for a Queensland Enduring Power of Attorney, the power of attorney must be:
- in the approved form;
- signed by the principal (or in some cases by a person under the instruction of the principal) and signed and dated by an eligible witness (also defined in the Act);
- include certain certificates as are set out in section 44 of the Act.
The current approved form of Enduring Power of Attorney is a lengthy document which identifies a number of options for the principal to stipulate how the power is to be exercised, including their wishes, and whether third parties are to be consulted.
The form of Enduring Power of Attorney and the guide to it can be found online through the Queensland Government website.
Obligations of attorneys
Becoming an attorney under an Enduring Power of Attorney means taking on significant obligations and it is not without risk.
First, the attorney must exercise the power honestly and with reasonable diligence to protect the principal’s interests, and that has the result that an attorney can be liable to compensate the principal if they fail to do so. Second, the attorney must exercise the powers subject to the terms of the document. Third, the attorney must sign documents noting that it does so as attorney for the principal. Fourth, an attorney who knows that their power has been revoked, must not exercise or purport to exercise the power. Fifth, the attorney must avoid entering into a transaction by which there is or might be or results in a conflict between their own interests or the interests of a close associate or relation or another duty, with the interests of the principal. This is subject to the power of the principal (if they have capacity) or the court to authorise the transaction, under section 71 of the Act.
The attorney must only use confidential information for specific purposes, under section 74 and 74A.
The attorney must consult with other attorneys and ensure that communication is maintained between them.
An attorney can only resign with the leave of the court if the principal’s capacity is impaired.
The attorney may invest only in authorised investments – section 84;
The attorney must keep records and keep their property separate from the principal’s property.
By section 87, there is a presumption that any transaction between the principal and any attorney (or relation, business associate, or close friend of the attorney) was induced by the attorney’s undue influence. This is a critically important provision.
Section 88 of the Act limits the way in which an attorney can give away or donate the principal’s property.
By section 89, an attorney for financial matters can provide from the principal’s estate for the needs of the dependant of the principal, subject to the terms of the document.
Part 5 (sections 96 – 105) of the Act sets out ways in which the attorneys have protection and relief from liability. Part 6 of the Act sets out that a court can order an attorney to pay compensation and to account for profits where there has been a failure to comply with the Act in the exercise of the power and section 107 sets out that a person whose benefit under an estate is lost or reduced as a result of any dealings under a power of attorney, they can apply to the Supreme Court for compensation in some circumstances.
For advice in relation to Enduring Powers of Attorney, please contact our estate lawyers Peter Muller at peterm@qbmlaw.com.au and Jessica Murray at jessicam@qbmlaw.com