Real talk: Is an enduring power of attorney truly necessary?
From time to time I am asked whether a power of attorney is truly necessary. Sometimes clients find the decision about who to nominate as an attorney to make their decisions if they lose capacity quite confronting, which is completely understandable.
My answer about whether a power of attorney is truly necessary is always the same; it is critical to have a current and appropriate enduring power of attorney in place.
Why bother making an enduring power of attorney?
An enduring power of attorney (or equivalent document – the rules and forms are different in every Australian state) is often described as a living will because it comes into effect while a person is still alive, but has lost capacity to make decisions for themselves. Often in the case of financial and property matters, it applies if the person has lost capacity or is also out of the jurisdiction.
Throughout this post I will use the word ‘attorney’ in a general sense however each state uses different language such as guardian or alternative decision maker.
Generally speaking, there are two main matters for which you can nominate an attorney to make decisions on your behalf (although, again, this varies from state to state).
The first is your medical and lifestyle decisions – if you are incapacitated, your attorney makes decisions about your medical treatment, where you live, which care providers you utilise etc. Essentially, your attorney takes on the responsibility for your care and wellbeing.
The second is your financial and property matters – your attorney can step into your shoes and access your finances and property as if they were you. This extends to actions like accessing bank accounts, buying and selling assets on your behalf, discharging and granting mortgages, and in some cases, if permitted by a superannuation fund and your attorney document, amending superannuation binding death benefit nominations.
Under both types of decisions, the powers are very broad and you should only nominate someone who you trust implicitly.
It is possible to nominate different attorneys for financial and medical matters (as the different decisions require different skill sets), although it is often common for the same people to be nominated for both roles.
Sometimes it can be difficult to decide who to nominate as a backup attorney i.e. spouses are often comfortable nominating each other, however if they do not have adult children or other close family members, it can be a difficult decision about who to nominate for a situation where they both are unable to act. I always urge clients to nominate a backup attorney to manage their affairs if they and their spouse are both incapacitated. Depending on the jurisdiction, you can often nominate several back up attorneys to act jointly, severally or by majority.
So what happens if you lose capacity and have not nominated an attorney?
Of course, as with most estate planning issues, the government provides a solution if you become incapacitated without having nominated someone to make decisions on your behalf.
If you lose capacity and have not nominated an attorney to act on your behalf, then it is up to interested parties to apply to the relevant state tribunal to request that they be appointed to make decisions on your behalf. There will often be separate processes for your medical/lifestyle decisions and your financial/property decisions.
An interested family member or friend will have to take the initiative to go through this process and prove that they are appropriate to be nominated to make decisions on your behalf, and if no one is willing to take on the responsibility, then this burden will fall to the public trustee and the office of the public guardian (or equivalent body in your particular state).
This process gives you no comfort about who will make your decisions in the event you are incapacitated, and while it may require some difficult decisions and some potentially unpleasant conversations now in order to finalise an appropriate enduring power of attorney, that is surely more preferable than leaving the decision to a government department.
Remember that the enduring power of attorney applies while you are still ALIVE – which means you could recover from the incapacitating event and have to live with the consequences of the decisions made by your attorneys. Why would you leave such an important decision to chance?