Money and family can be a volatile mix
When you grant someone enduring power of attorney, you're effectively handing over control of your money and other assets in the hopes they'll be well-managed should you become incapable of handling such things.
Surrendering control of your financial life to someone else is a bit like jumping out of a plane: you really hope the parachute works. What makes it so risky? Access to money can do funny things to people – even the ones you love.
Misused enduring power of attorney documents figure largely in the financial abuse of elders – and the culprits are often the kids. It's a common enough occurrence to have earned itself a name: "inheritance impatience".
In the hands of a non-professional like a family member or friend, an enduring power of attorney agreement amounts to a blank cheque. Once the document is signed, there's no independent oversight of the "attorney" or attorneys who take charge of your affairs.
That's fair warning, but it may not be much help. When someone is mentally or physically incapacitated their financial affairs will need looking after, so an enduring power of attorney arrangement is often the only real option.
The trick is to proceed with extreme caution and remove all traces of sentimentality from your mind when asking, who should I trust with such a responsibility?
The different kinds of power of attorney
There are two different kinds of power you can grant:
- General power of attorney – gives someone else control of your financial life for a specific period of time, such as during extended travel or a long stay in the hospital, or until you become incapacitated. If you become incapacitated, a general power of attorney document is no longer valid.
- Enduring power of attorney – gives someone else control of your financial life indefinitely if you're no longer mentally or physically capable of making such decisions.
Picking the right person
The ultimate qualification for any enduring power of attorney candidate is an absolute absence of conflict of interest, someone who doesn't stand to gain (at least not legally) from taking over your affairs. On the face of it, that might immediately rule out most family members.
There's plenty of evidence on hand that letting a son or daughter take charge – especially while other siblings look on warily – can rent the fabric of the family.
That said, an implicitly trusted family member is often the best-placed person for the job.
But even if that family member is headed toward sainthood, the person signing away their financial rights – the "donor" – should still fully understand what they're giving away and how an enduring power of attorney arrangement works.
And you should generally grant power of attorney to more than one person, whether they're family members or not.
Setting up a system of majority voting and decision making among the attorneys can also be a good idea, especially where children are involved, though the rules around this vary from state to state.
It's a difficult decision, but don't put it off too long. When a person already lacks capacity to look after their finances, it's too late to enact an enduring power of attorney. In that case, a state administrator would have to step in to mediate any major financial decisions.
It would be a doctor's call as to whether a person has capacity or not.
Help from the state
If no family member is well-suited, you should be looking for a disinterested third party, preferably a legal representative for whom foul play would constitute a career-threatening crime.
A public trustee such as the NSW Trustee and Guardian or parallel organisations in other states can be a viable option, but be sure that whoever you're dealing with has the right level of professional indemnity insurance in place. Such organisations have the knowledge and know-how and are free from conflict of interest.
The Queensland-based Elder Abuse Prevention Unit (run by UnitingCare Queensland), which has seen its share of elder financial abuse, told us that seniors who are thinking of nominating an enduring power of attorney should always consult with a qualified professional who is acting solely on their behalf.
Enduring power of attorney prerequisites
When you choose a relative or friend to take on enduring power of attorney duties, they should be:
- at least 18, totally trustworthy and live close enough to actively look after your affairs
- competent enough to deal with financial and property-related matters and keep accurate records of any transactions made through the enduring power of attorney arrangement
- someone whose selection won't create conflict within the family.
The solicitor's duties
It's always a good idea to hire a solicitor when enacting an enduring power of attorney arrangement. Even though you can download forms online or buy DIY power of attorney kits, we don't advise you go it alone. A solicitor is obliged to make sure that the donor:
- has not been coerced or unduly influenced into signing away their financial affairs
- understands the full significance of the enduring power of attorney document.
Taking advantage of the vulnerable
Alzheimer's Australia cites a number of cases in which enduring power of attorney agreements were abused at the expense of vulnerable people.
- A woman with dementia was taken by her daughter to live in her home without the consent or knowledge of the daughter's brother. The daughter obtained enduring power of attorney over her mother's affairs and then sold her mother's house and used the money to pay off her mortgage, buy a car, go on holiday and pay other expenses.
- The partner of a woman whose mother suffered from dementia gained enduring power of attorney over the mother and used it to sell the mother's home and buy a larger one more suitable to his and the daughter's large family.
- A woman in her late 80s was persuaded by two of her five children, one of whom held enduring power of attorney, to take out a reverse mortgage on her home and thereby place her future ownership of the home in jeopardy. The errant kids used the money to go on holiday.
"Our research suggests that a considerable proportion of financial abuse of people with dementia is perpetrated by people appointed as an attorney under an Enduring Power of Attorney not acting in the interests of the person with dementia," Alzheimer's Australia concluded in a 2014 report.
And it's worth pointing out that getting someone to sign a power of attorney document through deception, coercion or undue influence is illegal.
Keeping them honest
Aside from enduring power of attorney, the Australian Human Rights Commission offers a handy breakdown of some financial abuse scenarios that can occur and what to do when someone pressures you to a make financial move that isn't your idea.
Don't let a family member friend or someone else pressure you to act as guarantor for a loan. When your name goes on the loan document and someone else is responsible for making repayments, you are totally responsible for the debt if that person proves unable or unwilling to pay it.
The situation is inherently worrisome if the person in question hasn't qualified for the loan on their own – which immediately casts doubt on their ability to repay it.
- If you let someone use your home as security for a loan, you're living dangerously. Most banks won't hesitate to take your home as compensation for an unpaid loan, and you'll almost certainly be evicted regardless of any agreements you may have made with the borrower.
Get your own lawyer and speak to them in private. Don't let anyone involved in a financial transaction – especially anyone who stands to benefit from it – act in the capacity of a lawyer by trying to explain complicated things like mortgages, loans and guarantees.
This is a conversation for you to have with a trusted lawyer who doesn't stand to gain from the proceedings outside of a fee for service and whose selfless devotion to your interests is a matter of professional and legal priority.
Families and money may not mix. If you're worried about managing your financial affairs due to age or ill health (mental or physical), there are public services such as the NSW Trustee and Guardian (and similar organisations in other states) that can help.
It can be a better idea than surrendering this responsibility to a family member, no matter how well meaning they might be.
- Selling your home can affect your pension payments, so don't let yourself be talked into it unless you have bias-free confirmation that it's the right move. The family home isn't counted in the asset test to determine how much pension money you're entitled to, but if you sell your home the asset becomes liquid and the money will be included in the test. It could mean a significant reduction in your pension payments.
- You can place restrictions on enduring power of attorney powers. These are flexible legal instruments – you can prevent an attorney from selling your home, for instance, and place other limits on their powers. And their powers can be legally revoked if misused.
Tips from the CHOICE Community
Our callout on CHOICE Community about enduring power of attorney yielded some very sound advice.
- Don't wait too long to enact an enduring power of attorney. Once a person loses the mental capacity that's required to enter into one, it'll be too late.
- If one relative obtains enduring power of attorney, other relatives should be notified, though this isn't a legal requirement.
- When an enduring power of attorney is enacted, the right people and institutions need to be notified, especially banks, solicitors and anyone else who's been involved in financial dealings with the donor. This doesn't happen automatically.
- In particular, make sure financial institutions know an enduring power of attorney is in effect and what it means.
Who to contact if you need help
The financial abuse of elders is getting a lot of attention these days, with good reason. Fortunately, there are a number of resources available to help.
Queensland: Elder Abuse Helpline 1300 651 192
New South Wales: NSW Elder Abuse Helpline 1800 628 221
ACT: Elder Abuse Prevention, Information and Referral Line (02) 6205 3535
Victoria: Seniors Rights Victoria 1300 368 821
South Australia: Aged Rights Advocacy Service 1800 700 600
Western Australia: Advocare 1300 724 679
Tasmania: Tasmanian Elder Abuse Helpline 1800 441 169
Northern Territory: Darwin Community Legal Service 1800 812 953