By Andrew Frankland and Mimi Su
A power of attorney is an important document to have in place as part of your personal "legal housekeeping".
In short, a power of attorney provides the legal mechanism by which, in appropriate circumstances, you can give to another person the legal right to make financial decisions on your behalf. The person or persons you nominate to act for you (called your "attorney") must comply with the law as set in the Powers of Attorney Act 2003, which includes a duty to act in your best interests.
Most of the time, of course, you will be able to make your financial decisions for yourself. However, in certain circumstances it will be necessary for another person (or persons) to be able to make these decisions on your behalf acting in your best interests. Having a properly structured power of attorney in place provides you with the legal certainty that, if the circumstances warrant, your important financial affairs will be dealt with by someone in whom you have confidence, know and trust.
A power of attorney can be very general in nature or it can be tailored to meet your specific needs. For example, the power of attorney might:
- Deal with all of your financial affairs or might be limited to only specific assets or transactions (eg the selling of a property); and
- Operate immediately once it is properly executed or only operate in specific circumstances (eg for the period of time that you are overseas or in the event that you lose legal capacity, that is you don't have the mental/physical ability to make and communicate sound based decisions).
Further, in some circumstances it might be appropriate to nominate different people to act in relation to different assets. For example, in the case of business owners it is sometimes appropriate to nominate person X (eg a family member involved in the business or an independent adviser) to act as your attorney in relation to your shares in your private company and nominate person Y (eg a spouse, child or other family member) to act as your attorney in relation to your other "non-business" assets).
Depending on your specific needs, your power of attorney might be a "general power of attorney" or an "enduring power of attorney" (which, unlike general power of attorney, continues to have effect if you lose the legal capacity to manage your own affairs), or it might be appropriate to have both forms of power of attorney in place.
New Form Power of Attorney
The statutory format for power of attorney documents has, for many years, been governed by prevailing legislation (currently the NSW Powers of Attorney Act 2003). In 2013, a new format for the power of attorney document was legislated by the NSW Parliament. The new statutory form is a significant improvement on the previous statutory form because it directly asks the person giving the power of attorney to think more deeply about and address specific issues when granting a power of attorney. As a general comment, the mere process of completing a power of attorney in the new format should make the power of attorney arrangement more valuable for you in meeting your specific needs.
The issues that should be considered in structuring your power of attorney document and which are specifically addressed in the new power of attorney form are as follows:
- Will there be one person or two or more persons jointly who will act as your fist choice attorney;
- Will there be one person or two or more persons acting as your second choice (or "substitute" attorney) – this is particularly important if your first choice attorney cannot act for you;
- If there is more than one person acting as your attorney, how are their decisions to be made (eg "jointly" or "jointly and severally" and are their decisions to be made by majority or unanimous resolution) and what happens if one of the joint attorneys ceases to act (ie should the other or others continue to act or should the appointment of all of the attorneys cease);
- Apart from yourself, should your attorney be able to benefit anyone else with your assets – for example, it is common for an attorney to be given the authority to use your assets to benefit your spouse and financially dependent children in order to meet their reasonable living and medical needs;
- Are there any conditions or limitations that need to be placed on your attorney – for example, is the attorney authorised to act in respect of specific assets or specific transactions only or is their authority more general and over all of your financial affairs;
- When is the attorney authorised to commence to act as your attorney – for example, will the attorney be able to act immediately upon execution of the power of attorney document or only at specified times (eg when you are overseas) or only if you have in fact lost the legal capacity to make decisions for yourself (commonly as determined by appropriate medical evidence);
- Will your attorney be authorised to act if you have lost the legal capacity to make decisions for yourself (called an "enduring power of attorney").
Even prior to the new power of attorney format being legislated, we address these issues with our clients when preparing their powers of attorney. The new legislative format for powers of attorney does not mean that current powers of attorney are invalid. Your current powers of attorney will remain valid even though they are in the "old" format.
However, if your personal circumstances have changed significantly or if your power of attorney was not completed with Bartier Perry, now would be a good time to review your current arrangements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.