Insights / August 9th, 2023

Enduring Powers of Attorney: What Financial Advisers and Accountants Need to Know

While many aspects of financial planning can be anticipated and planned for, unexpected circumstances may cause a person to lose the ability to manage their affairs. Such events are often triggered by illness, accident, or cognitive decline.

1.         What is an EPOA?

An EPOA is a legal document that has specific form and witnessing requirements. Under an EPOA, the Principal can appoint one or more primary Enduring Attorneys and one or more substitute Enduring Attorneys (who may step in for the primary Enduring Attorney/s).

Multiple Enduring Attorneys may be appointed in the following ways:

  • jointly and severally: Enduring Attorneys may act together or individually;

  • jointly and by the majority: the decision of the majority will be effective; or

  • jointly only: all Enduring Attorneys must act together and agree.

The EPOA may be drafted to include various conditions or restrictions on the power of the Enduring Attorneys. Enduring Attorneys (and any third parties who deal with EPOAs) should carefully review and remain aware of what limitations or conditions are imposed on their power when acting in this role.

2.         When is an EPOA “activated”?

Once an EPOA is signed and the Enduring Attorneys formally accept their role, it becomes a legally valid appointment. It is therefore critical that the Enduring Attorneys (and any third parties who deal with EPOAs) are aware of when their power as an Enduring Attorney becomes active.

The EPOA may become active immediately upon the Enduring Attorney’s acceptance. Accordingly, the Enduring Attorney is then empowered to make decisions on behalf of the Principal (even though the Principal still has legal capacity). That power then remains effective in the event that the Principal subsequently loses legal capacity in the future.

More commonly, EPOAs are drafted to only become active when the Principal loses legal capacity. However, determining whether the Principal has lost legal capacity may not be straightforward for Enduring Attorneys to assess. Some potential indicators of legal incapacity include difficulty or inability to communicate, difficulty with recall and comprehension about affairs, moderate to severe confusion, delusions or cognitive decline caused by a medical issue e.g. advanced dementia, Alzheimer’s etc. That said, none of these factors are strictly determinative of when the Principal has lost legal capacity.

For these reasons, when the power of the Enduring Attorneys only becomes active in the event of the Principal’s legal incapacity, it is prudent for Enduring Attorneys to obtain a formal medical assessment to that effect. This will provide reassurance to the Enduring Attorneys that their power has actually been legally activated. This will be critical where a Principal appears to be suffering from periods of lucidity and then periods of incapacity.

There may in fact be a requirement in the EPOA for the Enduring Attorneys to obtain such medical certification. Where EPOAs are drafted in this matter, the Enduring Attorneys must comply with this requirement before their role becomes active and cannot “self-assess” legal incapacity. In such circumstances, it would be prudent for the Enduring Attorneys to present the medical determination of the Principal’s legal incapacity to third parties when relying on the EPOA to enter into transactions on behalf of the Principal.

3.         How broad is the power of Enduring Attorneys?

The law governing EPOAs across Australia is state-based, which means that their power differs between each jurisdiction. In a number of jurisdictions, the power under an EPOA is confined to dealing with financial and property affairs. However, in Victoria, Queensland, the Australian Capital Territory and the Northern Territory, that power can be extended to additional matters, including making personal and health decisions for the Principal.

Other important differences exist between the state jurisdictions which may require careful consideration if a Principal owns assets (in particular, real property) in multiple jurisdictions across Australia.

4.         What are the common duties of Enduring Attorneys?

Enduring Attorneys have strict legal obligations to act in the best interests of the Principal at all times. These obligations are called fiduciary duties. This means that when exercising their authority, Enduring Attorneys must:

  • determine the Principal’s best interests and not enter into transactions or make decisions which conflict with those interests;

  • keep accurate records of all dealings and financial transactions; and

  • keep the Principal’s money and property separate from the Enduring Attorney’s own assets.

5.         What can’t an Enduring Attorney do?

There are certain actions that the law prevents Enduring Attorneys from undertaking. These include:

  • acting as a director of a company or trustee of a trust on behalf of the Principal;

  • acting against the best interests of the Principal; or

  • making gifts from the Principal’s assets or entering into a position of conflict with the Principal, unless directly authorised in the EPOA.

If an Enduring Attorney breaches their authority, their appointment can be revoked and the Enduring Attorney may be required to personally account for any loss caused by their actions to the Principal.

EPOAs require careful consideration to ensure that the Principal’s interests and affairs are protected in the event of their legal incapacity. If you would like more information about EPOAs, please contact Emily White, Senior Associate on 08 8228 1111 or by email at ewhite@cowellclarke.com.au.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice.  You should not act upon the information contained in this publication without obtaining specific professional legal advice.  No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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