There’s something you can do to prevent it from happening to you and locking you and your family out of your financial life.
- Case Study
- What does a Power of Attorney cover?
- Who needs one?
- How long does it last for?
- What happens if ‘I don’t have one, but I suddenly need help?’
- The paperwork is a little different in each state
- Who can you appoint as your attorney?
- Five key mistakes people make with Enduring Powers of Attorney
- 1. Choosing the wrong person to act as your attorney
- 2. Having only a Limited Power of Attorney in place
- 3. Confusing the roles of an Executor to a Will and an Attorney
- 4. Not understanding what your Attorney can do under a POA
- 5. Not making a Power of Attorney and not signing it while you still have healthy mental capacity.
- So how do you make a Power of Attorney?
Why you should never rely upon shared PIN numbers or credit cards as a backup plan for your financial life.
James is a TV satellite dish installer who one hot day slipped and fell off the scaffolding on a customer’s roof and suffered a serious head injury.
To help slow the swelling to his brain, the hospital placed him into an induced coma.
That week he was supposed to sign contracts for future jobs, pay staff wages and make a loan repayment on his work truck. But James was unconscious in hospital with significant head trauma and unable to make those decisions himself.
Without a Power of Attorney in place, there was nobody legally able to make decisions for him.
Real Estate. When his partner called the real estate manager asking for an extension on the rent explaining James had suffered a head injury, they issued a notice to vacate fearing the worst and ongoing non-payment of rent.
Bank loan. When his partner rang the local bank asking for an extension on a loan repayment citing James was in the hospital with a severe head injury, because the business loan facility was an at call facility, the bank began proceedings to call in the loan amount, fearing future non-payment of the business loan.
Credit Card. In an attempt to make things better, Jame’s partner used James PIN number to access the business internet banking and pay wages that week. As James was in the hospital and unable to access the account himself, all transactions on the account from his admission date were deemed fraudulent which triggered the suspending of the business credit card which then dishonored a number of scheduled end of month invoice payments, including workers compensation premiums and the lease on the family car.
Financial disaster in under 5 days. In the course of a week, Jame’s financial life took a turn for the worst and he was effectively locked out of his financial life because he hadn’t put in place a Power of Attorney with someone he trusted.
What is a Power of Attorney (POA)?
Simply put, it’s a legal document you create that grants another person the legal right to act on your behalf as your representative when you can’t.
This can give them the power to deal with bank accounts, transferring money, paying bills, dealing with investments, or even buying and selling property).
What does a Power of Attorney cover?
- it can be for a limited use like completing the legal documents for buying a house while you’ve traveled overseas, through to looking after an elderly parent’s bank accounts or interacting with Centrelink, their GP or the NDIS on their behalf etc. or
- it can also be unlimited in use and allow another person (also described as the person acting as your attorney) to make all legal decisions you can make yourself.
Many people choose to have a combined Enduring Power of Attorney that provides the full range of legal authority your representative needs to look after your decisions when you can’t.
Pro Tip: Being able to make your own decisions is also referred to as having capacity. This is a legal term that refers to you being able to make decisions yourself. A general power of attorney is no longer valid when the person who gave that power loses their capacity to manage their own legal and financial affairs. When this happens, an Enduring Power of Attorney is required should you suffer a loss of mental capacity.
Who needs one?
Everyone over 18 needs one.
How long does it last for?
You can appoint an attorney for a limited period or an indefinite period, and you can change your mind and revoke it too.
An Enduring Power of Attorney lasts until you pass away or until you revoke it.
What happens if ‘I don’t have one, but I suddenly need help?’
A family member or a friend will need to apply to the governments Guardianship Board (depending on the State you live in) and ask to be appointed as your financial manager.
- This can take a considerable amount of time, especially if there’s a family dispute, and most people find the process very traumatic for all parties involved.
So, it’s in your best interests to have your Enduring Power of Attorney already set up to protect you and your family from the unexpected risk we all face of being suddenly unable to make our own financial decisions.
The paperwork is a little different in each state
Each State has its own legislation and documents. For example, Victoria has recently updated their processes and moved to only use the broader Enduring Power of Attorney, that allows your representative to make decisions for you if you’re absent and even if you have lost capacity to make your own decisions.
While a legal POA is valid in every Australian state, if you have assets in a state, you might like to make sure you have a POA that is native to that state also well, just to make sure your bases are covered.
Pro Tip: When it comes to granting someone the rights to transact with your property under your POA or EPA, you need to first register the completed document with the Lands and Titles Office.
Who can you appoint as your attorney?
The person you appoint to make decisions on your behalf, usually referred to as your attorney, will have full authority to deal with your legal and financial affairs, so appoint someone you trust.
Five key mistakes people make with Enduring Powers of Attorney
1. Choosing the wrong person to act as your attorney
Giving someone the legal power to make financial and lifestyle decisions for you is a significant responsibility. Most people chose either a family member or close friend or a Trustee company to act as their attorney.
- Choosing the wrong person can make a hard situation worse and may mean increased conflict in your family and can lead to decisions being made that are not ones you would have wanted.
2. Having only a Limited Power of Attorney in place
There are a few different types of documents needed to cover all aspects of your life if you’ve lost the mental capacity to make decisions for yourself (whether through sickness or injury).
- If you only have a limited Power of Attorney, your family may still need to go to the Guardianship Board to have a guardian appointed if you don’t make that decision yourself and document your wishes properly ahead of time.
3. Confusing the roles of an Executor to a Will and an Attorney
When it comes to modern estate planning people often think your Will is all you need. The main differences you need to understand is:
- your Attorney acts on your behalf only while you are alive
- the executor of your Will looks after your affairs after you have passed away
It's a common mistake to confuse these two roles or believe that an Attorney still has power after someone passes away. The power in a POA ends once the person who made it passes away.
4. Not understanding what your Attorney can do under a POA
Your representative acting for you under your POA can have wide-ranging powers when it comes to what they can do on your behalf.
- They can sign contracts on your behalf, pay bills and also get full control of your self-managed superannuation fund (SMSF) and potentially your family trust too, so it is important that you decide and document the extent of control you wish them to have the limits you wish them to work within too.
5. Not making a Power of Attorney and not signing it while you still have healthy mental capacity.
Life happens to us all and there are clear and deliberate ways we can all protect and provide better for ourselves, our families and our businesses.
- The final mistake people make is to avoid making a Power of Attorney altogether.
Setting up your own Power of Attorney and Power of Enduring Guardianship document is a key piece of becoming more Life Confident. Like being caught locked out of your car, your house or even your phone, being caught without a Power of Attorney can have a devastating effect you and your family – effectively locking you out of your financial life when you need it most.