A will is the first thing that most people think of when they’re getting their estate planning in order. I’ve written on how to make yours as airtight as possible here. However, there are two other important documents that are drafted to protect the individual and their assets - Enduring Power of Attorney and Power of Attorney.

These documents are important pieces of your financial plan as they give the legal ability for someone else to make financial decisions on your behalf if you are unable to manage matters yourself.

Below, I look at the types of Power of Attorney, the reasons for having a Power of Attorney, and the best way to go through the process.

The types of Power of Attorney

There are two types of Power of Attorney (POA) – a General Power of Attorney (POA) and an Enduring Power of Attorney (EPOA).

A POA is a legal document that gives an individual the ability to manage another’s financial matters if they are not able to manage them themselves. An example of this would be if you are living overseas and you are unable to deal with bank and financial matters, so you appoint a sibling to do so on your behalf. Another example would be if an older parent is less mobile and their child goes to the bank to conduct their financial matters.

There are limits to a POA. It is only valid as long as the person has the capacity to make decisions. Capacity is the ability to make decisions and be able to understand the context and outcomes of a decision. For example, if a person is in a coma, or has advanced Alzheimer’s, the POA would no longer be valid as they do not have the ability to make decisions for themselves.

This is where an Enduring Power of Attorney fits in. An Enduring Power of Attorney allows another individual to make financial decisions on behalf of them even when they have lost capacity. It is extremely important that an Enduring Power of Attorney is appointed before a person loses capacity. It cannot be appointed after. This is why forward planning is necessary.

These documents aren’t a blank cheque. The POA will outline how much power the person has, and the extent of the power on different assets or accounts. For example, you may want a POA to be able to access bank accounts to pay bills but not access investment accounts.

Both Power of Attorney and Enduring Power of Attorney are restricted to financial and legal matters in New South Wales.

Enduring Guardian

As well as the two types of Powers of Attorney, there’s also an appointment of an Enduring Guardian. Enduring Guardians do not assist with financial matters, but instead on lifestyle and healthcare decisions if you are incapacitated. An Enduring Guardian can influence or decide decisions around where you live, the healthcare you receive and medical treatment that you receive.

Part of this is understanding someone that you can trust with the responsibilities, but you may also partner an Enduring Guardian with an Advance Care Directive (ACD). An ACD gives specific instructions about the healthcare you would like, and not like to have, if you have a life-threatening illness or injury. Both of these safeguards can ensure that your wishes are followed if you are incapacitated.

It is extremely important to ensure that an Enduring Guardian is kept up to date. You are able to revoke and appoint Enduring Guardians as life and circumstances change.

Who can be your Power of Attorney?

The answer is basically anybody. The most common people selected are lawyers, family members, friends or NSW Trustee or Guardian. These roles are a large amount of responsibility and require trust, especially with the Enduring Guardian. However, you are able to increase your peace of mind by including strict parameters dictated by the documents.

They must be a competent adult and understand the views about the decisions that they may have to make. Ensure this by thoroughly communicating with your elected person and running through the responsibilities outlined in the POA document.

Communicating your decision

It’s important that you communicate your decision with your elected person.

As much as you can specify what you intend in the Power of Attorney, Enduring Power of Attorney, Enduring Guardian and Advance Care Directive, it is important to recognise that there is nuance involved and those you have entrusted with serious decisions may need to interpret your wishes as best they can.

Having a conversation with them and allowing them to ask any questions that they have will mean that they are better versed on what your wishes may be at one of, if not the most stressful times in your life.

The alternative

If you do not have these legal documents for protection and an issue arises there is added complexity.  If none of these documents are drawn up there is nobody that can legally make decisions on your behalf if you are incapacitated. In NSW, a family member or support worker will need to make an application to NSW Civil and Administrative Tribunal (NCAT) to appoint a financial administrator.

This forum can also be used if there is a contest against an individual abusing the power that they get from the legal documents.

These documents are useful during some of the most turbulent and stressful times in life.  It is likely that the person that is making decisions on your behalf is a loved one, who will also be going through a similarly tough time. These may help to relieve some of the burden and stress.

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