Get better informed about powers of attorney by learning from these commonly-held myths:
#1. Signing a power of attorney causes you to lose control over your affairs
By signing a Power of Attorney you do NOT lose control over your affairs while you are able to manage them.
As long as you retain your capacity, you can always vary or revoke your own power of attorney, and you can place limitations on your agent which vary according to your requirements.
Most people execute an unrestricted Enduring Power of Attorney. However, for obvious reasons you have to be careful who you appoint as your agent, who must be somebody you can trust.
#2. You can sign a power of attorney if you lack capacity
A person can only create a power of attorney (or any legal document, for that matter) if they are legally competent to do so. This is the legal test of “capacity”.
Once you lose your capacity, it is too late to create this type of protection. Like insurance, you need to have this protection mechanism in place before you need to use it.
Many people misunderstand this legal requirement for capacity to be in place to execute legal documents. Once a person lacks legal capacity, then they can no longer sign any legal documents including a power of attorney or a Will.
The only recourse is then a guardianship proceeding through a Court or Tribunal, which can be a costly and time-consuming process.
You cannot sign a Power of Attorney after you become of unsound mind.
If for any reason you become incapable of handling your affairs and a power of attorney is not already in place, an application to the SACAT/Guardianship Board may be involved to request the appointment of a person to act on your behalf.
The person appointed may not be someone you would want and payment of commissions and other expenses could be involved.
#3. You can find a power of attorney document on the internet
A power of attorney should be created to appropriately represent the specifics of your unique circumstances.
The Internet is a minefield of foreign, out of date and poorly drafted documents. Have a power of attorney custom drafted to your circumstances and make sure it complies with local laws.
Getting a power of attorney document off the Internet means that you could be paying for a document that:
- Is not current
- Lacks important authorities
- Doesn’t represent the details that are appropriate to your situation
- Does not cover the legal requirements of your state
- Is too ambiguous
If a power of attorney is ambiguous it is ripe for challenges and disputes. The issue is that when problems with a power of attorney are discovered it is usually too late to do anything about it.
#4. You can avoid problems by appointing multiple agents jointly
It is very common for principals to be nervous about whom to appoint as their agent under power of attorney.
Often, they will decide to appoint more than one agent, on the assumption that this will force the agents to agree with all decisions, meaning that they must watch over each other.
However agents can disagree, or one of them could become sick or be absent interstate or overseas.
If this happens, and you have restricted your power of attorney by insisting that all agents must sign all decisions jointly, then the whole system will break down, as the remaining signature(s) will be useless unless ALL agents sign.
#5. A power of attorney grants the agent the right to do whatever they want with your assets
The agent under a power of attorney always has an overriding obligation, known as a fiduciary obligation, to make decisions that are in the best interests of the principal.
Just because a power of attorney grants the agent a power it doesn’t mean they have the right to act in any way they like.
If the agent’s action is not in the best interests of the principal then it can be set aside and the agent can be made personally liable to make good any loss.
This fiduciary obligation is not expressly stated in the power of attorney, and it doesn’t need to be because it is implied by law.
The fiduciary obligation is a restriction placed on the agent under a power of attorney to protect the principal and their assets.
Some people fear getting a power of attorney because they are worried that their agent will mismanage their estate and do what they please with it.
Legally your agent shouldn’t do something that is not in your best interests — that is their fiduciary obligation to you as your agent.
However, it is critical that you choose someone you trust implicitly to be your agent. Try to choose someone who is trustworthy and has integrity.
It’s also good if the person has the business sense to understand the agent’s role and responsibilities, but as long as they are trustworthy and act with integrity they can find the help and advice they may need from professional advisers such as lawyers, accountants and financial planners.
#6. There is only one standard power of attorney
The principal determines the type of powers to grant their agent in the power of attorney document, which is why it should be drafted by an experienced lawyer so that it covers the principal’s unique situation.
With that being said, there are two main types of powers of attorney:
- A general power of attorney which governs all powers covered by a power of attorney (like buying or selling property or otherwise managing the principal’s assets).
- An enduring power of attorney which continues to operate in the event that you later become mentally incapacitated after, for example, an accident or suffering a stroke or becoming senile.
#7. An enduring power of attorney survives death
All powers of attorney terminate on death. Once the principal has died the authority granted to the agent under the power of attorney terminates.
The difference between a regular power of attorney and a enduring power of attorney revolves around incapacity.
Regular types of power of attorneys all terminate on death or incapacity — meaning that the agent can engage in legal business on behalf of the principal until the principal dies or is mentally incompetent to act on their own behalf.
Once either of those events happens, the power of attorney is no longer valid. This general power of attorney might be useful if the principal is out of the country or otherwise indisposed.
A enduring power of attorney, on the other hand, can survive mental incapacity (but not death).
A enduring power of attorney allows the agent to continue to act on the principal’s behalf even if the principal is mentally incapacitated.
Genders and Partners is the oldest law firm in South Australia, established 1848.
Contact us to learn more about powers of attorney, guardianship, estate-planning and estate-administration solutions, by visiting our website today and schedule a free no obligation telephone consultation to find out how we can help you and yours.
Remember – any mistakes you make in your estate planning documents won’t become apparent until after it’s too late for you to fix them. Get proper advice, and do it right.
It is also vitally important that you keep your estate plan up to date – it is not a set-and-forget exercise.
To learn how to protect yourself, your family and your assets, by creating a professionally-made estate plan, claim your FREE 15 minute Telephone Consultation
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