A national survey conducted in 2024 by the Australian Human Rights Commission amongst 3,000 Australian adults revealed significant gaps in understanding and utilising Enduring Powers of Attorney (EPOA). Findings indicated that 87% of Australians haven’t set up an EPOA for themselves. This heightens the risk of elder financial abuse, and highlights the necessity of comprehending the responsibilities conferred and limitations imposed by an EPOA in NSW.
What is a Power of Attorney?
A Power of Attorney is a legal instrument that enables someone to appoint an attorney to manage financial and legal affairs on their behalf, during their lifetime. It ceases upon the person’s (principal) death and can be classified as:
- General: Suitable for short-term needs and operates for a specific period, lapsing on the earlier of the end date or if the principal loses mental capacity; or
- Enduring: Continues to be valid even if the principal becomes mentally incapacitated.
The attorney is required to act in the principal’s best interests, in accordance with equitable principles which give rise to the attorney’s fiduciary obligations, and statutory requirements, namely the Powers of Attorney Act (NSW) (the Act).
Responsibilities of an Enduring Attorney
A prescribed EPOA confers extensive authority on an attorney through standard and additional powers including, but not limited to:
- Managing finances, investments, and bank accounts;
- Paying bills;
- Selling assets (e.g., real estate and shares);
- Accessing financial documents;
- Making reasonable gifts on behalf of the principal;
- Conferring benefits on third parties (i.e. the principal’s children);
- Managing superannuation contributions; and
- Renewing, extending or making a binding or non-binding death benefit nomination.
Someone may typically authorise for their EPOA to become effective once a medical practitioner considers that they are unable to manage their affairs, and provides a document to that effect.
Attorneys must act honestly and for the person’s benefit, whilst avoiding conflicts of interest. In fulfilling their role, the attorney must navigate the conditions prescribed in the EPOA and statutory limitations against the person’s individual circumstance.
Limitations of an Enduring Power of Attorney
While an EPOA grants substantial authority, it doesn’t permit an attorney to:
- Vote on behalf of the principal;
- Make medical or personal lifestyle decisions (which requires an Appointment of Enduring Guardian);
- Act as a company director or carry out your duties as trustee for someone else;
- Make or revoke the principal’s Will; or
- Swear affidavits or statutory declarations on matters within the principal’s personal knowledge.
Any attempt to extend an attorney’s powers beyond statutory limitations will be considered void. An attorney must adhere to the person’s binding instructions while they have capacity and take into account their known wishes once capacity is lost.
Recognition of EPOAs across Australian jurisdictions
Each Australian State and Territory has its own legislation governing EPOAs. An EPOA executed in another Australian jurisdiction is recognised in NSW if it complies with the laws of its originating State and is capable of being lawfully exercised in NSW. However, foreign EPOAs aren’t recognised under NSW law.
Liability and legal considerations
Enduring attorneys are legally accountable for their actions. This is highlighted in McFee v Reilly [2018] NSWCA 322, where the enduring attorney was found to have breached their fiduciary duty.
In this case, a wife was acting as an enduring attorney for her husband. She instructed a solicitor to transfer her husband’s farm to their four daughters as joint tenants for $1, despite the property being valued at $815,000. This was challenged on the grounds that the wife acted beyond the scope of authority given to her under her husband’s EPOA. By transferring a substantial asset for nominal consideration, the enduring attorney hadn’t acted in the principal’s best interests. She made a gift inconsistent with his wishes – he hadn’t previously agreed to transfer the property to their daughters, to the exclusion of their son. Further to this, the property that was disposed of by the enduring attorney was specifically gifted in the Will. The Court held that even though the son wasn’t named in the principal’s Will due to a clerical error, the facts supported the inference that he was the intended beneficiary of the property.
This case demonstrates why attorneys must strictly adhere to the scope of their powers to avoid ademption* of testamentary gifts by an enduring attorney. Section 22 of the Act stipulates that if an enduring attorney disposes of a testamentary gift, the named beneficiary under the Will of a deceased principal who executed an EPOA retains an equivalent interest in any surplus money or other property resulting from the transaction (i.e. sale, mortgage, charge or disposition of any property or other dealing), as though the original gift had remained unchanged.
Superannuation and estate planning
Enduring attorneys may be authorised to manage a principal’s superannuation entitlements, including death benefit nominations if explicitly authorised in the EPOA, provided it is not considered a testamentary act.
Enduring attorneys cannot make or change Wills. As such, transactions involving estate assets must be carefully considered to avoid unintended consequences, including the ademption of gifts under the principal’s Will.
In some circumstances, an accountant may advise the enduring attorney that withdrawing a principal’s superannuation before death may yield tax advantages for beneficiaries.
Professional attorneys and fees
Unlike trustees, attorneys don’t have an automatic right to remuneration unless expressly authorised in the EPOA. If a professional, such as a solicitor, is appointed, a charging clause should be included to clarify permissible fees. However, it’s preferable to avoid appointing a professional to act as enduring attorney.
Summary
An EPOA is a powerful legal instrument that requires careful drafting and execution. It must comply with NSW law, and conform with the principal’s own personal circumstances and wishes. Both principals and attorneys must thoroughly understand their legal rights and obligations to mitigate risks, uphold fiduciary duties, and safeguard the principal’s best interests. Seeking legal advice when preparing or exercising an EPOA can provide essential safeguards against financial mismanagement and potential disputes.
Find out more information in our Plain English Guide to Power of Attorney.
Please contact our Wills & Estate Planning experts to discuss establishing an Enduring Power of Attorney.
* Ademption occurs when a specific gift in a will fails because the property is no longer in the estate when the will maker dies.
