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Have you ever found yourself locked out of your car, perhaps your house or even your phone?

Some people find themselves locked out of their financial lives due to sickness or injury when they can’t make decisions for themselves.

This can happen because they might be traveling and uncontactable, maybe suffered an accident or perhaps they're sick or injured and now unable to make decisions for themselves – and don't have a Power of Attorney in place to protect them.

There’s something you can do to prevent it from happening to you and locking you and your family out of your financial life.

Read in this article

Sometimes the quickest way to see a problem is to watch it unfold in the life of another

Case Study: James is a TV satellite dish and NBN cable installer who, one hot day slipped and fell off the scaffolding on a customer’s roof suffering a serious head injury. To help slow the swelling in his brain, the emergency doctors at the hospital placed him into an induced coma. That week James 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 the hospital with significant head trauma and unable to make those decisions himself. This is what happened - all because he had not set up a Power of Attorney.

Without a Power of Attorney (POA) in place, there was nobody legally able to make decisions for him.

In the course of a single week, James' financial life crumbled, all because he did not have a legal document in place

  • 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, James's partner used his 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 triggered the auto dishonor of 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, James' financial life took a turn for the worse 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 document can be restricted to a single issue - or general and grant broad decision powers.

This can give another person the power to deal with bank accounts, transfer money, pay bills, deal with investments, or even buy and sell property).

Insight: You should never rely upon shared PIN numbers or credit cards as a backup plan for your business or financial life.

What does a Power of Attorney cover?

Broadly speaking, this legal document;

  • 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
  • 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 also combine this with an Enduring Power of Attorney that provides the full range of legal authority your representative needs to look after your decisions when you no longer have capacity.

Pro Tip: Being able to make your own decisions is also referred to as having mental 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 mental capacity to manage their own legal and financial affairs. When this happens, an Enduring Power of Attorney is required.

Who needs a Power of Attorney?

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 at will.

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 government's 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, which allows your representative to make decisions for you if you’re absent and even if you have lost the capacity to make your own decisions.

While a legal POA is valid in every Australian state, if you have assets interstate from where you live, 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 right 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, 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 (POA) , 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. This is not the case.

The main differences you need to understand are:

  • 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 may also seek 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 a healthy mental capacity

Life happens to us all and there are clear and deliberate ways we can all protect and provide for ourselves, our families, and our businesses.

  • The final mistake people make is to avoid making a Power of Attorney altogether.

Setting up your Power of Attorney (POA) and Power of Enduring Guardianship (POEG) document is a key piece to 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 on you and your family – effectively locking you out of your financial life when you need it most.

So how do you make a Power of Attorney?

Our Modern Estate Planning service can help you build a legally valid Power of Attorney recognised in every Australian state and Territory.

author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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