What is a Power of Attorney?
Just as having a Will ensures assets are managed properly when you die, a Power of Attorney allows someone else to look after your finances when you’re unable to. Phillip Richards, Director of Endorphin Wealth Management explains more about what’s involved in having a Power of Attorney and why you’d be wise to have one, just in case.
What is a Power of Attorney?
There are different types of Powers of Attorney you can nominate, but the two main ones are a Medical Power of Attorney (also known as a guardianship) and an Enduring Power of Attorney. As you might expect, a Medical Power of Attorney gives another person authority to make decisions about your medical treatment if you’re not physically or mentally able to choose for yourself. An Enduring Power of Attorney (PoA), on the other hand, gives someone the legal authority to manage your financial affairs when you’re unable to do so.
Why would I need a Power of Attorney?
As you grow older, having a PoA organised is important in case you lose capacity to make decisions about your finances. If this were to happen and you don’t have someone legally appointed to act on your behalf, your financial affairs and your personal wellbeing could both be affected.
Let’s say you have money invested in a portfolio and you’re advised by a financial planner to make changes because of poor market performance. If you’re no longer capable of acting on that advice, your financial adviser’s hands are tied, unless you’ve nominated someone as your PoA. Or there could be a change in government policy that affects your superannuation savings and retirement income. As a planner, making changes to how super is invested or managed is only something I can do on the instructions of a client, or their authorised attorney.
A PoA isn’t just for later stages in your life. Being in an accident that leaves you unable to act on your own behalf could leave you and your family financially vulnerable without a PoA arrangement in place. So if anyone, young or old, is making arrangements for their Will, it makes sense to sort out an Enduring Power of Attorney too. Your solicitor might raise it during discussions about your Will, and it can be fairly simple to arrange your PoA at the same time.
Organising a PoA is also worth doing if you expect to be living or travelling overseas for a time. It can be very inconvenient to manage your assets and finances from a distance, particularly when original signed documents are needed. Instead of disrupting your life on the move with phone calls, paperwork or even a plane ride back to Australia, you can have your nominated attorney take care of things.
Who can be my Power of Attorney?
First and foremost, your chosen attorney should be someone you can trust to act in your best interests. And it certainly helps if they have some experience with finances and good knowledge of your assets so they can fully understand the consequences and results of any decisions or actions they take. In many cases, attorneys are family members – parents, siblings, children or grandchildren – as they are often the ones who know best how we ourselves would think or act.
It’s also possible to have multiple attorneys. Appointing both your parents or more than one of your children as joint attorneys is something that can work well as it allows the many people who care about you to share responsibility for managing your affairs. Having different family members can also bring more expertise to complex and challenging problems or decisions they may be dealing with.
In a case where family members don’t have the experience to be your attorney, or where relationships have broken down and there is a lack of trust around money, a close friend could be asked to step in. But whoever you choose, it’s important they accept their role and understand what’s involved. And if you have a financial planner advising you on your affairs, having them meet with your attorney can prepare the way for an easier transition, if the time comes when they need to take up that role.
How do I go about making a Power of Attorney arrangement?
Each state and territory in Australia has their own agency that can advise you on the process for nominating an Enduring Power of Attorney. Any Power of Attorney arrangement is a legal one, involving documents for you and your nominated person to sign. These documents act as proof of your attorney’s legal authority to act on your behalf.
However, even if you’ve been legally appointed as an attorney, it may still be called into question. With cases of elder abuse becoming more common, financial institutions can be reluctant to accept evidence of a PoA if it cannot be validated in some way. In the recent 2018/19 Federal Budget announcement, the government has proposed working with all states and territory to create an online national register of Enduring PoA arrangements. This should go some way to reducing the risk of the financial abuse that can occur when someone makes a false claim to be acting under a PoA.
If your parents are going to be relying on you to manage their money in the future, it’s important to talk openly with them and the rest of your family. Get tips and advice on how to prepare to look after your parents and their finances without causing stress.
Budget 2018/19 “Funding is being provided to protect older Australians from abuse, including funding trials of specialist elder support services, and the Government will work with the states and territories to develop an online national register for enduring powers of attorney.” https://budget.gov.au/2018-19/content/essentials.html