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Power of attorney: what is it?

A power of attorney is a legal document made by a person, who is called the ‘principal’, that appoints another person to deal with the principal’s money, bank accounts, shares, real estate and other assets. This can include spending and managing the principal’s money, buying or selling shares for the principal or buying, selling, leasing or mortgaging of the principal’s house or other real estate. The person who does these things for the principal is called the ‘attorney’.

A power of attorney only authorises an attorney to act in relation to financial matters. It does not allow the attorney to make personal (including medical) decisions for the principal. The appointment of an Enduring Guardian is required for decisions relating to health and lifestyle. There are two types of powers of attorney: General Power of Attorney (also called an ordinary power of attorney) and Enduring Power of Attorney, but the most usual is the Enduring Power of Attorney.

Enduring power of attorney

An enduring power of attorney is one which continues to operate if the principal loses mental capacity. An enduring power of attorney contains these requirements:

  • It must say that the principal wants it to continue after they have lost mental capacity.
  • The attorney has to sign the form to show that they consent to act. This can occur at the same time as the principal signs or at a later time. However, the enduring power of attorney will not begin to operate until the attorney has signed.
  • The principal’s signature must be witnessed by a special witness (called a ‘prescribed witness’).  A prescribed witness is a solicitor, barrister or Clerk of the Court.
  • The prescribed witness must sign a certificate on the form stating that they explained the enduring power of attorney to the principal and that the principal appeared to understand it.
Do I lose my rights?

Making someone your attorney does not mean that you lose your right to operate your bank account, deal with your real estate or affect any other rights that you have. You can continue to look after your money and property while you still have mental capacity to do so.

When should I make a power of attorney?

It is important to make a power of attorney before you need it. This is particularly true for enduring powers of attorney. Once you have lost mental capacity, you cannot make a power of attorney because for a power of attorney to be effective, you must be able to fully understand what you are signing. A power of attorney usually starts as soon as it is signed and given to the attorney. If, however, you do not want your attorney to start using the power of attorney straight away, you can state on the power of attorney form when you want it to start. If you do this, then making your power of attorney early does not mean that you are handing over control to your attorney straight away.

Relevant legislation

The Powers of Attorney Act 2003 is mainly aimed at remedying problems that currently exist in practice with enduring powers of attorney (EPOA) – especially misuse of such powers by unscrupulous attorneys.

Some of the concerns older people have regarding EPOAs are:

  • An EPOA may be activated on a false representation of incapacity;
  • An attorney will wrongly take a benefit for him or herself;
  • An attorney will issue benefits to a third party without authorisation.

The Powers of Attorney Act 2003 attempts to address some of these issues and provides for a greater review of the EPOAs by the Guardianship Tribunal.

Information contained in this article is of a general nature and is applicable to the current law in New South Wales.  It is not intended to address the circumstances of any particular individual or entity. Advice from our experienced Estate Planning Team should be sought if there is doubt as to the applicability of this information to individual circumstances.

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