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.

This episode goes through the types of Power of Attorney, the reasons for having a Power of Attorney, and the best way to go through the process. We also look at other related documents that will protect you and your assets.

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Shani Jayamanne: Welcome to another episode of Investing Compass. Before we begin, a quick note that the information contained in this podcast is general in nature. It does not take into consideration your personal situation, circumstances or needs.

Mark LaMonica: Alright, Shani, a frequent topic on our podcast is death.

Jayamanne: Well, not really death, it's estate planning.

LaMonica: Well, I was going to say, like normally it is you predicting and then getting excited about my death. But also some estate planning thrown in there. Today's on estate planning. Although Shani may throw in some other lines.

Jayamanne: And estate planning is really what happens to your assets after you die. And more importantly, making things easy for your loved ones after you die.

LaMonica: But one part of estate planning really concerns your assets being taken care of while you are alive. And they make up the trinity of estate planning documents with a will. And we're going to talk about two of them today. Just so we know that there are three things in a trinity, just so you're aware. And they are the power of attorney and enduring power of attorney documents.

Jayamanne: And again, we've done an episode on wills, but specifically that they are often contested. So how to make it as airtight as possible so that there is more chance that your wishes are on it. You can listen to that episode where we leaned on the insights of an estate planning expert about how to do this. We did have quite a few emails after this episode from listeners who have been in a situation where they're involved in these situations where wills have been contested.

LaMonica: And I think for both these documents, you're supposed to pick somebody younger than you. So maybe I will name you my power of attorney.

Jayamanne: Okay, that's a lot of responsibility.

LaMonica: And we'll go through what those responsibilities are. So you're basically saying no.

Jayamanne: I'm happy to do it.

LaMonica: That she will. I will have a minor like knee injury and she'll be like, pull the plug.

Jayamanne: Get the document out.

LaMonica: Do not resuscitate. Okay, back to our exciting topic of power of attorney. So, we both think that joking aside, that this is the most human part of your financial plan. So it touches a lot of people, including the ones that you care about the most. And provides protection for you in some day to day circumstances like we'll explore. But it also comes into play in extremely vulnerable times in your life, whether that's due to illness or medical incapacity.

Jayamanne: And ultimately, these documents will dictate who will be in control of your quality of life if you do lose the ability to make decisions for yourself. So it's worth paying attention. I'm just thinking about you hurting your knee.

LaMonica: So, Shani is clearly just giddy now with the thought of my death.

Jayamanne: So just being in control of your quality of life, if you do lose the ability to make decisions for yourself. But it's worth paying attention to and understanding how these documents do work.

LaMonica: So this is going to be the episode of all podcasts ever where you laugh the most and we're covering power of attorney.

Jayamanne: It's very bad.

LaMonica: Okay.

Jayamanne: We've only just started recording these on video too. So this is probably one of the ones where.

LaMonica: Yeah, no, exactly. Why don't we get back into it? I'm not normally the one that tries to bring some stability to this podcast, but try to get through this. So enduring power of attorney and power of attorney are important. So 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're unable to do so.

Jayamanne: So first, I think it's important to distinguish between those two documents. So Mark, do you want to take this one?

LaMonica: I guess so. Well, we'll see how I go. So a POA is a legal document that gives an individual the ability to manage another's financial matters if they're no longer able to manage them themselves. So an example of this would be if you're living overseas and you're unable to deal with bank and financial matters. So you appoint a sibling to do this on your behalf. And Shani put that in there sibling because I don't have any. So I have no hope there.

Jayamanne: You have friends.

LaMonica: I thought I did. But, you know, we'll see. Another example would be if an older parent is less mobile and their child goes to the bank to conduct their financial matters. So they just go to the bank on their behalf.

Jayamanne: There are limits to a power of attorney. It's only valid as long as a person has a capacity to make decisions and 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 Alzheimer's, the POA would no longer be valid as they don't have the ability to make decisions for themselves.

LaMonica: And predictably, perhaps that is where the 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. So it's extremely important that an enduring power of attorney is appointed before a person loses capacity, cannot be appointed after. That is why planning is necessary.

Jayamanne: And these documents aren't a blank check. The POA will outline how much power the person has and the extent of the power on different assets or accounts. So for example, you might want a POA to be able to access bank accounts to pay bills, but not access investment These documents can be customized to your situation and what you feel comfortable with the relationships that you have and the trust that you have with the elected personal people.

LaMonica: And it is worth noting as well that both power of attorney and enduring power of attorney are restricted to financial and legal matters in New South Wales, which I take it is different than other states.

Jayamanne: I think so.

LaMonica: There we go.

Jayamanne: So, we're going to move on to another form of protection as well as the two types of powers of attorney. There's also an appointment of an enduring guardian and an enduring guardian does not assist with financial matters, but instead on lifestyle and health care decisions if you are incapacitated. An enduring guardian can influence or decide decisions around where you live, the health care you receive and the medical treatments that you can receive as well.

LaMonica: And part of this is understanding someone or finding someone that you can trust with those responsibilities. Now, I've picked Shani and I'm questioning that at this point.

Jayamanne: But I feel like that's valid.

LaMonica: Yeah, we'll see. We'll see how that goes. But you may also partner an enduring guardian with an advanced care directive or ACD. An ACD gives specific instructions about the health care you would like to have and not to have. So, especially if you have life-threatening illnesses or injuries like that knee injury I was talking about, both of these safeguards can ensure that your wishes are followed if you're incapacitated.

Jayamanne: So, for example, you might have an enduring guardian that makes decisions about your wishes if you fall into a coma or if you are unable to make a decision about your housing situation, nursing homes, assisted care, et cetera. But you can also pair this enduring guardian with an advanced care directive that can say, okay, if I'm in a coma, Mark, don't pull the plug unless I'm medically brain dead.

LaMonica: Medically brain dead. How would I test for that? I mean, I've seen you.

Jayamanne: I think someone else tests for it, but.

LaMonica: Okay, like maybe a doctor, for example.

Jayamanne: Or a bartender.

LaMonica: Or a bartender. Yes, I have seen you fairly drunk at the pub.

Jayamanne: Medically brain dead.

LaMonica: Medically brain dead. So, there we go.

Jayamanne: So, until then, just keep me going.

LaMonica: Oh, yeah, no, absolutely. So, it's extremely important to ensure that an enduring guardian is kept up to date. You're able to revoke and appoint enduring guardians as life and circumstances change. It is obviously a large responsibility. So, just keep in mind that you may want to change them through separations, marriages, estrangements, all of the things that life throws your way, but hopefully not to listeners of this podcast.

Jayamanne: There's one more document that we're going to bring up that are important to your estate planning. And that is if you have dependents. You have children or people that are reliant on you for care. If something happens to you, there needs to be a plan for them that's put in place. And that's what you call an emergency care plan. And an emergency care plan will lay out the contact details for who will take over the responsibilities for the dependents in your absence. It will also include instructions on any specific care they need. So, for example, if they're reliant on particular kinds of medication.

LaMonica: And like every other document we've talked about in our now longstanding death series, communication is really key for this. It is making sure that the person you elect should take over the responsibilities, understands what's involved, and they're willing to act in case of an emergency.

Jayamanne: And if there are specific care instructions, run over them with the relevant medical professionals and ensure that the right people know where these documents live and where it can be found in an emergency.

LaMonica: And they, and these are all really subsets of the documents that are required for a comprehensive estate plan. The main documents that many individuals and families focus on and have legally drawn up are the power of attorney and the enduring power of attorney along with a will.

Jayamanne: So, I have a question for you, Mark. Who can your power of attorney or enduring power of attorney be?

LaMonica: Well, the answer is basically anyone you could pick your podcast partner, for example. But generally, the most common people that people pick are lawyers, family members, friends, or New South Wales trustee or guardian.

Jayamanne: If you're in New South Wales.

LaMonica: If you're in New South Wales, but assuming other states have the same thing in place. So these roles are a large amount of responsibility and require trust, especially with the enduring guardian. However, you're able to increase your peace of mind by including strict parameters dictated by the documents.

Jayamanne: And they must be competent adults 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 or EPOA documents.

LaMonica: And one thing that we've spoken about through all of this estate planning episodes is that it's so important to communicate once again those decisions with your elected person, but also with your family and your significant other if they are not the election.

Jayamanne: As much as you can specify what you intend in a POA, EPOA, enduring guardian, advanced care directive, it is important to recognize that there is nuance involved and those you have entrusted with serious decisions may need to interpret your wishes as best they can.

LaMonica: Which is the thing that I'm concerned about with you.

Jayamanne: Just give me really specific instructions Mark?

LaMonica: No, I'm going to leave them completely open because I trust your decision making even though it's not going to benefit me. But there are a lot of different variables, different situations that can arise. These documents can't possibly cover all these scenarios. So it's important to elect someone that really understands what you want and can make the best judgment call for you in any circumstances that arise.

Jayamanne: And having a conversation with them and allowing them to ask any questions that they might have means that they're better versed on what your wishes may be one of, if not the most stressful time in your life.

LaMonica: So we stressed the importance of these documents so far, but it's worth understanding what the alternative is. So what happens if you don't have a proper estate plan and don't have these legal documents for protection? Well, if an issue arises, it can add a lot of complexity for your loved ones in an already emotionally charged time.

Jayamanne: And if none of these documents are drawn up, there is nobody that can legally make decisions on your behalf if you are incapacitated. In New South Wales, a family member or support worker will need to make an application to the New South Wales Civil and Administrative Tribunal or NCAT to appoint a financial administrator.

LaMonica: And this forum can also be used if there's a contest against an individual abusing the power. Listen to this. Abusing the power that they get from these legal documents.

Jayamanne: Who's going to take me to NCAT?

LaMonica: I don't know. Maybe a listener will.

Jayamanne: These documents are used for during some of the most turbulent and stressful times in your life. And 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. So this might help relieve some of the burden and the stress.

LaMonica: Speaking of ends, we are at the end of the podcast now. Now people listening, this sounded like a very short podcast. It took about three hours to record because Shani kept laughing when she was thinking about my death or just incapacity. So anyone who wants to send me an email [email protected], please let me know if you think I should appoint Shani to any of these positions and why or why not. Thank you very much for listening.

(Disclaimer: Any advice in this podcast is general advice or regulated financial advice under New Zealand law prepared by Morningstar Australasia Proprietary Limited and/or Morningstar Research Limited without reference to your financial objectives, situations or needs. You should consider the advice in light of these matters and any relevant product disclosure statement before making any decision to invest. To obtain advice for your own situation, contact a financial advisor.)