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Enduring Powers of Attorney – ways of reducing the risk of financial abuse

Posted on 26th November 2018
Catherine Henry Lawyers
Catherine Henry Lawyers

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Power of Attorney
What is a power of attorney?

Powers of Attorney in NSW are documents which allow specific people to make specific decisions for you, as though they were you. They act as your ‘attorney’. For example, someone appointed as your attorney may be able to continue to pay your bills, or operate your bank account, or trade your shares, or sell your home.

Enduring Powers of Attorney continue to be effective even if you become ill or unable to make your own decisions. However, that also means that if you do become ill or unable to make your own decisions, you may not be able to change the Enduring Power of Attorney. So, you need to carefully consider – in advance of becoming ill – who and how you want your attorney to act.

What are the risks of an enduring power of attorney?

In short – changes in relationships over time is generally the biggest risk. Enduring Powers of Attorney ‘endure’ for a long time. Any long term arrangement can be risky because relationships and circumstances may change a lot over that period of time. So, a relationship which was once one of love and trust may, after a long period of time, have deteriorated and you may not wish for that person to be your attorney anymore.

Also, increasing life expectancy may be impacting ‘inheritance expectancy’ because it is taking longer for the second generation to inherit, and the costs of aged care are significantly diminishing the amount of that inheritance. The temptation to access first generation wealth early may be too great for some people, and there is a conflict between necessarily spending first generation wealth (for example on nursing home fees) and preserving that wealth for potential inheritance for the second generation.

Blended families and second spouses can be a significant source of conflict. For example, a second spouse may not be named as executor of the Will and may not stand to significantly inherit, however, if a second spouse is named as a personal attorney without restriction, there is a significant ability for that second spouse to sell assets which would otherwise form part of the estate, or otherwise diminish the estate, during your lifetime and before the Will ever takes effect.

Unfortunately, at the moment, there is not an effective watchdog to protect people from financial abuse, largely because there is no effective monitoring system to know when financial abuse is occurring.  Although there is legislation creating obligations for how an attorney should and should not act, and specifying that records ought to be kept, there is no need for an attorney to report to anyone or to lodge annual returns. The lack of monitoring, together with the difficulty of enforcing suspected and actual financial elder abuse, creates a perfect storm for it to occur.

Should I have an enduring power of attorney?

When used appropriately, Enduring Powers of Attorney can provide very useful arrangements which can allow your financial affairs to carry on even though you are ill or unable to make your own decisions. Enduring Powers of Attorney can allow independence of living without having to get an officially appointed guardian. For example, someone you trust may be able to buy your groceries, pay your bills, deal with your pension and your bank, or pay for any care you may require. This can allow you to stay living almost independently, and it means that the person you have chosen to be your attorney does these things for you. Otherwise, an organisation may step in and you may be dealing with people you don’t know and wouldn’t choose, and who may not know or act in accordance with your wishes or your usual behaviours.

If appropriate restrictions are placed on Enduring Powers of Attorney then the risks can be managed, and you can still have the benefit of someone you know and trust assisting you with your daily living and affairs.

What can I do to manage some of this risk?

Although it is cliché, it is true – prevention is better than cure.  So, act fast before you become ill or unable to make your own decisions and review your Enduring Power of Attorney arrangements.

You may want to consider having multiple people listed with various levels of power, for example, a family member alone may be authorised for certain transactions of a certain type or a certain value, but other transactions may require a number of people together or perhaps an external advisor. You should also think about who may report any suspected financial abuse, such as an advisor who may have a close understanding of your wealth arrangements, or perhaps by requiring regular reporting and meetings with certain people.

Your options for safeguarding this very useful power are as broad as your circumstances require.

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