Have you considered establishing a Power of Attorney?
Having a valid Will in place means that, if you were to die, your affairs would be in order and your assets would be distributed according to your wishes.
But what would happen if, as a result of illness or injury, you became unable to manage your own affairs? Or if you went overseas for an extended period of time, who would look after your affairs?
A Power of Attorney allows you to appoint someone you trust to act on your behalf. That person can make financial decisions, either on a temporary or a permanent basis in line with the limits and conditions you put in place. Duties include operating a bank account, paying bills, collecting debts, voting at meetings and signing documents.
To make a General Power of Attorney, you need to have mental capacity and understand the nature and effect of the power you are granting to that person. When you die, the Power of Attorney document ceases to have effect and your affairs will be managed, and your assets distributed, according to the instructions in your Will.
A General Power of Attorney also ceases to have effect if you lose mental capacity.
So, how do you cover yourself for the possibility of becoming mentally incapacitated? It’s easy. Simply make an Enduring Power of Attorney now, while you still have mental capacity. This document allows you to appoint someone you trust to make financial decisions on your behalf, both now and in the event you become mentally incapacitated.
Under an Enduring Power of Attorney, decisions can be made without your consultation, so it’s important to understand the nature and effect that an Enduring Power of Attorney has, as well as the range of decisions that can be made.
In some cases, it may be difficult to ascertain whether someone has the mental capacity to execute an Enduring Power of Attorney. In these cases, it’s usual to seek the opinion of a medical professional before it is implemented.
Laws and terminology differ from state to state, so if you’d like more information about General or Enduring Powers of Attorney, please speak to your financial adviser or speak to an estate planning specialist.
Case study: how an Enduring Power of Attorney works with a Will
Tom, aged 84, had an accident and became unable to manage his own affairs. He had established an Enduring Power of Attorney which appointed his nephew, Phillip, as his Attorney to make financial decisions on his behalf. Unfortunately, within a few months, Tom’s health worsened. Without seeking advice, Phillip sold Tom’s house to fund an accommodation bond for a retirement apartment with full-time nursing facilities.
As it turned out, this course of action caused Phillip some grief. On Tom’s death, it was discovered that he had specifically left his principal residence to Phillip and the balance of his estate to his niece, Lisa. Tom’s reasoning was to provide Phillip with a house (as Phillip had lost his property in a bitter divorce battle) and to provide Lisa with the residue of his estate (shares and bank balances).
As a result of the sale of Tom’s home, Lisa’s legal advisers argued that Tom did not have a ‘principal residence’ at the date of his death. Their argument was that the refund of the accommodation bond was not the same as a ‘principal residence’ and was deemed to be part of the residue of Tom’s estate and as such passed to Lisa. If that was the case, Lisa would receive all the estate and Phillip nothing.
By selling the principal residence, Phillip’s actions raised a legal interpretation issue as to whether the gift to Phillip of a specific asset was in legal terms ‘adeemed’ (taken away) by the sale of that asset.
It is very important to be aware that, when acting as an Attorney and a sale of any asset is contemplated, the legal consequences of the action need to be understood before that asset is sold.
Similarly, if you sell an asset during your life time, you should check your Will to ensure that any sale does not have an adverse effect. It’s better to change your Will than cause your estate to incur Court costs to argue the point. Far too often we see unintended consequences occurring as a result of Wills not being updated.