Empowering Your Client articles are specifically written for you to share with your clients to help improve their understanding of the importance and value of financial advice. This content is free for financial advisers to share and reproduce on your own website, social media, printed communications and emails. We hope you find it useful.
Few people give being appointed enduring power of attorney (EPOA) much thought until their mother or father is having difficulty managing finances, or needs to move into aged care.
The EPOA gives you the power to act on behalf of the principal (typically, your parent) in relation to financial affairs and property matters.
The EPOA appointment must be made when the principal still has the mental capacity to make decisions. It comes into effect either immediately, or when the principal no longer has that capacity.
This carries serious responsibilities and you need to understand the rules, explains Karen Gaston, a partner in Brisbane-based legal firm Thynne + Macartney, and an accredited specialist in succession law.
“The most important thing when acting for a principal is that you need to act in that person’s best interests. It may not always be what the parent wants, but what that person needs is the most important thing,” she says.
“Sometimes acting in the person’s best interest can even require you to act against your own best interest, such as choosing a nursing home with the best care, not just the cheaper one.”
Similar but different: general and enduring POAs
It’s important to check whether you have a general power of attorney (POA) – which gives you control of your parent’s affairs for a period of time such as during an extended stay in hospital – or an EPOA.
With a general POA, if your parent loses capacity the document is no longer valid. An EPOA, however, allows you to make decisions about your parent’s financial matters after he or she becomes incapable.
The financial matters you may need to attend to can include ensuring all the ongoing bills are paid, tax returns are lodged and the income and assets test application for an aged care home is completed and lodged.
“The principal’s best interest must be front and centre at all times and you must be prepared to make hard decisions. It can also take a lot of your time, especially when a person loses capacity,” notes Gaston.
When acting as EPOA, it’s important to seek advice.
People sometimes make inappropriate decisions because they do not consult anyone before acting, she says. “Imagine you were asked to defend your decision at some stage in the future. If it’s defensible then go ahead, but if you have questions in your mind about it, then ask an independent third-party like a lawyer, financial adviser or tribunal for advice.”
Remember, it’s not your money
A key point to keep in mind is that you must not intermingle your finances with the principal’s in any way.
“Keep detailed records and be prepared that you may have to hand them over at a later date to someone such as your parent’s executor. Think about how you will feel if they look over records of how you handled the money,” Gaston suggests.
“You need to maintain records about any cash spent or cheques written – including what it was spent on – so you have an explanation.”
Paying bills in cash and then refunding them from your parent’s account as the occasional lump sum is also not a good idea, she says. “It’s best to reimburse them individually so you can fully account for all the expenditure. If you run it like a commercial business, you will not fall foul of the rules.”
Records, including income tax returns, contracts for sale and any correspondence relating to the sale of a property need to be retained.
It’s also vital to act in your parent’s best interest when disposing of assets such as a car or house, Gaston explains. “Ensure you are not on both sides of a transaction as the buyer and seller. This type of ‘conflict transaction’ is a definite problem.”
Tips for acting as an attorney
Want to keep one step ahead? Sign up for our monthly enewsletter, full of insights and tips to help you in your day-to-day.
Important: This article has been prepared without taking account of the objectives, financial or taxation situation or needs of any particular individual. Before acting on the information, you should consider its appropriateness to your circumstances and if necessary, seek appropriate professional advice. Any information used in this article is for illustrative purposes only. Karen Gaston is not a member of the Commonwealth Bank of Australia Group of Companies (the Group) and the content or any view expressed by Karen Gaston does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. CBA, nor members of the Group accept any liability for losses or damage arising from any reliance on external parties their products, services and material.