Who Should be Appointed as Enduring Power of Attorney?

We as advisers all should know that a Will is not enough, as it only operates when you die. If your client doesn’t die but loses mental capacity (eg, due to stroke or dementia), they need to have appointed someone to be their Enduring Power of Attorney to be able to manage their financial affairs whilst the client is unable to do so for themselves. Hopefully there is no argument about that!

However, an issue which does often cause much consternation and hand wringing amongst clients is – WHO should be appointed as their Enduring Power of Attorney?

It’s easy to just say “choose someone who you completely trust”. The problem with just saying this is that there are often other important considerations that need to be borne in mind when making the choice of who to appoint as attorney, such as:

• Is the appointee commercially minded / financially literate?
• Is the appointee someone who understands and respects your wishes and values?
• Is the appointee assertive enough to be able to deal with sometimes unco-operative third parties and to advance the best interests of the client?
• Is the appointee physically capable of doing the job? (eg, there’s not much point appointing someone who is as old and frail as the client!)
• Is the appointee willing in the first place to take on the role?
• Is the appointee free of pressures that may adversely impact the proper performance of the role? (e.g. persons under financial, emotional and / or relationship stress are best avoided as candidates!)
• Where multiple appointees are proposed (such as adult children), do they get along with each other?

It is often suggested that as most of these criteria also apply to the choice of Executors for a Will, it may be a good idea to simply appoint the same persons who are the appointed Executors to be the Enduring Powers of Attorney.

In many instances that’s sound advice – but not always. This is because under a Will, whilst there may be wide discretions given to the Executor over numerous matters, usually the discretions don’t extend to deciding who receives the major shares of the client’s estate.

On the other hand, under an Enduring Power of Attorney it is normal for the appointed attorneys to be given almost unfettered full discretion over the client’s financial affairs (because it is often difficult to foresee all the different circumstances in which the power may be required to operate) – which may result in a conflict of interest arising that is simply too hard to resist.

For example, suppose the client has three children – Bart, Lisa and Maggie. Under the client’s Will, all three children benefit equally. Bart is the oldest and is the most financially literate, whilst Lisa is a very busy housewife with four small kiddies and Maggie has drug and alcohol dependency issues. Your client therefore has appointed Bart as their Executor. Given that the shares under the client’s Will are quite straightforward, there should be no issues in selecting Bart as Executor.

On the other hand, if Bart was selected as the client’s sole enduring attorney and given unfettered discretions regarding the use of the power of attorney, he may be tempted to use the power of attorney mostly for his own benefit to the exclusion of his sisters – with the result that there may be little left over in the client’s personal estate to be divided equally under the Will.

Does that sound a little far-fetched? It shouldn’t – unfortunately the Courts are littered with cases of children taking advantage of their parents. For instance, in the case of Watson & Ors v Watson [2002] NSWSC 919, a father granted a power of attorney to his trusted son, one of four children. The son withdrew $55,000 from the father’s bank account and transferred to himself the title to the family home. The power was granted just five days before the father had made his Will dividing his property between all of his children, subject to a right to occupy the family home in favour of the son.

So WHO should be appointed under the client’s Enduring Power of Attorney? We would suggest that if you stick by the following guidelines you can’t go too far wrong:

• Where the client is in a stable and loving spousal relationship, and under the client’s Will their spouse is the main beneficiary of the estate, their spouse is usually a good choice for a primary appointee – this assumes there are no other factors that may present a conflict of interest, such as where the spouse is a second spouse who does not get along with the client’s children of a previous relationship, etc.
• If the client’s spouse is unable or unwilling to act as attorney, and if the client has adult children who get along with both the client and each other, then if appropriate all the children acting jointly may be a good secondary choice of attorneys. Where the client feels that one or more of the children is not a good candidate, then in order to help prevent the appointed children “ganging up” against the non-appointed children, the appointees should be required (as a condition stated in the power of attorney document) to consult with their siblings before making any important decisions (such as decisions involving transactions over a specified dollar amount);
• If the favoured appointee ticks all the boxes but is not very financially astute, can the client rely on their advisers to be there to provide advice and guidance to the client’s appointed attorney?
• If there are no family members who can be appointed to the role (eg, where children constantly fight with each other, or the client has a “blended family” where the potential for conflicts of interest is too great), at the end of the day the best appointee may be an independent impartial third party such as the Public Trustee or other statutory trustee company. Whilst they will charge fees for their services (which may be based on a percentage of the income generated by your estate, an hourly time costed fee, a percentage of funds under management, or a combination of these), they will be impartial and bring to bear professional skills and experience to act in your client’s best interests.

On top of all this, the client should discuss the role with their proposed attorneys – by doing so they will not only find out whether or not the proposed attorneys are even willing to take on the role, but the client may also be able to address any issues that might otherwise have disqualified someone from the role, such as a misunderstanding as to the client’s expectations about how to handle their finances and the client’s investment strategy.

For further information please contact us on 02 8296 6266 or email - info@supercentral.com.au.

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EPAdvantage is our estate planning partner program open to Advisors who are using our Testamentary Manual system. A complimentary, value-added program, it offers registered members professional support, PD training and the resources needed in growing a successful estate planning practice.

Program benefits include:

• step by step instructions and training in using the Testamentary Manual system
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