While it sounds intimidating and highly formal, a Power of Attorney is actually a relatively simple - if not very important - part of your Estate Plan.
A Power of Attorney is a legal document where one person (the Principal or Donor in some states) gives another person (the Attorney or Donee in some states) the power to make legal and financial decisions on their behalf, and to deal with their assets while they’re still alive.
Powers of Attorney are separate to an Enduring Guardianship Appointment (known as an Advanced Care Directive in South Australia and an Appointment of Attorney for Medical Matters in Queensland, Victoria and ACT), which deals with delegating medical and lifestyle decision making to a third party.
In Australia, the powers you can delegate to your Attorney vary between states and territories, and it is advisable to consult each set of laws separately. We have put together this guide to give you a general overview of what a Power of Attorney is, why you need one and who you can appoint to take on this important role. If you need further information, we recommend seeking independent legal advice.
Why do you need a Power of Attorney?
Life is unpredictable, and part of being an adult is putting plans into place that cover scenarios you may not want to think about. A Power of Attorney appointment is a crucial legal document that allows a trusted family member, friend or associate to step in and help you with (among other things):
This is particularly important if something were to happen to you, and you weren’t able to make decisions that needed to be made. For example, with selling a property or managing a business. Your Attorney will be your representative and voice in dealing with solicitors, banks, real estate agents, and all other relevant parties.
Who should you appoint in your Power of Attorney?
If the time comes when you need a trusted “understudy” to step in and help you run the show, you’d want them to have learned their lines, right? They need to be someone who knows and understands your wishes and life plans, and can make decisions that you’d be comfortable with.
Because your Attorney can effectively have the same legal standing decisions to make decisions as you would have, your Attorney should be someone you trust completely, and who has your best interests at heart. They will need to separate their own feelings from the decisions they have to make, and have the confidence to handle the varying opinions of family, friends and medical providers.
A Power of Attorney can be given to anyone over the age of 18 including:
You can also appoint a professional Attorney, such as a solicitor or accountant. While these options remove the burden from a family member or close friend, they do generally come with an associated cost.
It’s also possible to have more than one Attorney, and in this case you would decide whether your Attorneys have the power to act:
You can likewise appoint backup Attorneys to fulfil the role if anything were to happen to your primary Attorneys.
Your Attorney has a duty under the law to always act in your best interests and not to directly benefit from their role unless you specifically want them to. Keeping your money and assets separate from theirs is a key part of this duty.
Your Attorney also has to keep accounts of actions taken and decisions made, backed up by proper records and evidence.
When does a Power of Attorney come into effect?
Appointing a Power of Attorney is an important component of any comprehensive estate plan. It comes into effect if:
You can have your Power of Attorney operating either immediately upon signing, at a specified date, or at the point at which you become mentally incapable of making decisions.
What kinds of Powers of Attorney are there?
There are two main types of Powers of Attorney:
A Power of Attorney is different to an Enduring Guardianship Appointment - while a Power of Attorney applies to legal and financial matters, Enduring Guardianship applies to lifestyle and medical decisions.
While a General Power of Attorney has practical uses to help you manage specific scenarios, an Enduring Power of Attorney is of particular importance to ensure that your affairs are managed no matter what may happen to you.
If you don’t have one, and you lose the mental capacity to act on your own behalf, your family has to apply to a tribunal to be given the right to take over and make decisions for you. An Enduring Power of Attorney provides an important safety net so your family can side-step that often costly and time-consuming complication.
Although these are the main categories of Attorney for financial decisions, Powers of Attorney do not cover health and lifestyle decisions. These are covered by appointing a Medical Decision Maker. Your Power of Attorney and Appointment of Medical Decision Maker sit alongside your Will to provide your family with a comprehensive set of tools to manage your affairs if anything were to happen to you.
Can you cancel a Power of Attorney?
As Principal, you can cancel a Power of Attorney at any time, as long as you have the mental capacity to do it. Your appointment also ceases to operate if you were to pass away - in this case, the Executor of your Will will step in to handle the affairs of your Estate.
If your Attorney becomes bankrupt, loses mental capacity, passes away or resigns from the appointment, your Power of Attorney will no longer have any effect.
Planning ahead with a Power of Attorney
Personal autonomy is something you take for granted. But it’s important to consider what happens when accidents, incapacity, illness or change of circumstances limit your ability to organise your affairs.
A Power of Attorney, like your Will, should be made before you need it - when it’s practical and you can fully consider who you would like to manage your affairs if you were no longer capable of doing so.
Although there’s no crystal ball showing you what lies ahead next month, next year or in the years to come, a Power of Attorney is one of the most important ways to safeguard your interests and deal effectively with life’s twists and turns.