POWERS OF ATTORNEY
We all hope that those we depend on will do the right thing by us, particularly if they become responsible for making important decisions on our behalf. New laws have now increased the safeguards that govern arrangements under Powers of Attorney.
What is a Power of Attorney A power of Attorney is a legal document by which one person (the “principal”) authorises someone (an “attorney”) to act on their behalf in certain circumstances.
There are two main types of Powers of Attorney:
- General Power of Attorney a fairly basic document and which is often given on a short-term basis. A General Power of Attorney ceases to operate if the principal loses mental capacity (such as with dementia or a coma).
- An Enduring Power of Attorney which continues to operate even if the principal loses mental capacity.
Who should have a Power of Attorney? Every business person should consider having a Power of Attorney in place, just in case it is ever required.
Everyone over about 50 should consider an Enduring Power of Attorney, to deal with their affairs if they should lose mental capacity before they die.
It is important to put a Power of Attorney in place before it is needed because once the requisite mental capacity has been lost, it is too late.
Form of Power of Attorney The Powers of Attorney Act 2003 retained the short-form Power of Attorney with which many people are familiar. It remains in two parts – one part dealing with the Powers and the other part dealing with the Limitations. An Enduring Power of Attorney must be in a specific form – and must be witnessed and certified by an authorised person such as a solicitor, who certifies that they have explained the effect of the Power of Attorney to the principal. Enduring Powers of Attorney made after 16 February 2004 may not be valid unless they are in the new format. As with many things the real challenge is knowing how best to draft these Powers of Attorney in the circumstances, and what sort of “checks and balances” to include.
A General Power of Attorney (which operates for only as long as the principal has mental capacity and can, therefore, be cancelled or overridden by the principal), is quite straightforward. However, an Enduring Power of Attorney may operate for the rest of your life (including after you lose the mental capacity to cancel it or to overrule the attorney(s)) – and needs to be carefully considered – not only to make sure you appoint appropriated attorney(s) but also to ensure you have appropriate “checks and balances” to feel confident your wishes will be properly carried out.
Who should I appoint as an Attorney? This is a very important decision and one which you must consider very carefully. Perhaps a close friend? A business college? A relative? A professional person (solicitor or accountant)? Perhaps a combination of these as a safeguard, many people like to use two or more attorneys (from different parts of their lives) – such as a family friend and their solicitor and require them to act jointly. The relative ages of the principal and attorney can be important.
New Safeguards The new laws on Powers of Attorney that came into effect in February 2004 clarify the extent of an attorney’s ability to use the principal’s funds, and increase the protection of the principal against financial abuse.
A principal must expressly authorise an attorney to use their funds to give certain gifts, donations or benefits to dependents for their reasonable living and medical expenses. If the Power of Attorney is silent about giving gifts, donations and benefits then they cannot be given.
What about pre-February Powers of Attorney? Powers of Attorney created prior to 16 February 2004 operate under the law under which they were created and are not subject to the new requirements.