Enduring Powers of Attorney. Why you should sign yours today

The law relating to enduring powers of attorney changed on 25 September 2008.  The new rules provide important protection for vulnerable people.  Powers of attorney signed after 25 September are valid only if the donor (person giving the power of attorney) and the intended attorney or attorneys are independently advised and the lawyer or other qualified person witnessing the donor's signature certifies to a number of matters.

However, the new law will also (slightly) complicate a process which used to be one of the simplest, least expensive but most important services your lawyer could provide.

All people, young and old, should make enduring powers of attorney in respect of both property and their personal care and welfare.  Tomorrow may be too late.  A motor vehicle accident or stroke today could cause brain damage and leave you incapable of making important decisions for yourself throughout the rest of your life.

What is an enduring power of attorney (EPA)?

An EPA is a document where you appoint another person to act for you if you become mentally incapable.  There are two types of enduring powers of attorney.  One is in relation to property and the other is in relation to personal care and welfare.

What is the difference between an EPA and a Power of Attorney?

The difference between a normal power of attorney and an EPA is that an EPA will ‘endure' if you become mentally incapable.  A normal power of attorney is suspended on the happening of certain events.  One of these is if the person granting the power of attorney (called the ‘donor') becomes mentally incapable.  However an EPA is not revoked if the donor becomes mentally incapable.

EPA in relation to personal care and welfare

An EPA in relation to personal care and welfare will come into effect only if the donor becomes mentally incapable.  It allows your attorney to make legal decisions regarding personal care and welfare.  For example, if the donor needs to go into care, the attorney can decide which home or hospital the donor will go to.

EPA in relation to property

An EPA in relation to property can be effective immediately, or it can become effective only in the event of mental incapacity.  Property includes any land that you own in your personal capacity, and your bank accounts.

What happens if you do not have an EPA?

If a person becomes mentally incapable and they do not have an EPA, then in order for decisions to be made in respect of that person's property or personal care and welfare a statutory manager needs to be appointed by the court.  This can be time consuming and destructive to family harmony.  Family members cannot always agree on who should be appointed.

Who can be your attorney?

The attorney must be over the age of 20 years, not a bankrupt and not mentally incapable.  A property EPA can be given to one or more persons or to a trustee company.  A personal EPA can be given only to one person; however, a person can be named as a substitute if the named attorney is unable or unwilling to act as the attorney.

Requirements for an EPA

The donor must have mental capacity at the time of signing.  Both the donor and the attorney must sign and have their signatures witnessed.  The form that must be used is specified in the Act.  The donor can authorise the attorney to act in relation to all of their property, or to act in relation to specified things, and subject to conditions and restrictions.  The same applies to an EPA for personal care and welfare.  The donor can authorise the attorney to act generally or in relation to specific matters, and in either case, subject to conditions and restrictions.

Circumstances when an EPA will cease to have effect

An EPA will cease to have effect when:

• the donor revokes the power while mentally capable of doing so.  This must be done in writing, with the document signed and witnessed.  Written notice should be given to the attorney(s), and anyone else who has received a copy of the EPA, for example, banks.  Signing a new EPA does not automatically revoke an existing EPA;
• the donor dies;
• the attorney dies, becomes bankrupt or becomes incapable of acting;
• the court revokes the appointment of the attorney.

If you have appointed more than one attorney or successive attorneys, the appointment of one being conditional on the cessation of the appointment of another, then the above applies only to the last attorney.

How is mental incapacity determined?

Following the changes to the Act there is now a presumption that every person is presumed, until the contrary is shown, to be able to understand decisions in respect of matters relating to his or her property affairs or personal care and welfare, and communicate decisions in respect of those matters.

One of the key changes to the Act was the definition of ‘mentally incapable' in relation to personal care and welfare.  Under the old Act the donor was mentally incapable if the donor lacked, 'wholly or partly', the capacity to understand the nature, or to foresee the consequences of decisions in respect of matters relating to his or her personal care and welfare.

Under the changes to the Act, the donor is required to ‘lack the capacity' to make a decision as to his or her personal care and welfare, or to understand the nature of decisions or to foresee the consequences of decisions relating to his or her personal care and welfare or any failure to make such decisions.

EPA - property

If an EPA in relation to property is authorised to have effect only if the donor becomes mentally incapable then the attorney must not act in relation to the donor's property unless a health practitioner has certified, or a court has determined, that the donor is mentally incapable.

EPA - personal care and welfare

The attorney must not act in respect of a significant matter relating to the donor's personal care and welfare unless a relevant health practitioner has certified or the court has determined that the donor is mentally incapable.

A ‘significant matter' means a matter that has or is likely to have a significant effect on the health, wellbeing or enjoyment of the life of the donor, e.g. permanent change in the donor's residence, entering residential care or undergoing a major medical procedure.

Suspension of attorney's rights

A donor who regains mental capacity may suspend an attorney's powers to act by giving written notice to the attorney.  The attorney may not then act under the EPA unless a relevant health practitioner or the court has determined that the donor is mentally incapable.  The suspension does not revoke the enduring power of attorney.

Attorney's duties

The paramount consideration of the attorney is to promote and protect the welfare and best interests of the donor, while seeking to encourage the donor to develop competence to manage his or her own affairs in relation to his or her property, and personal care and welfare.  To encourage the donor to develop and exercise his or her capacity to understand the nature and foresee the consequences of decisions and to communicate such decisions, to act on his or her own behalf to the greatest extent possible, and to facilitate the integration of the donor into the community, to the greatest extent possible.

The attorney has a duty in relation to the donor's property to keep records of each financial transaction entered into by the attorney.

There is now a duty on the attorney to consult, as far as is practicable, with the donor, and with any person specified by the donor in the EPA.  An attorney, at any time the donor is mentally incapable, must not act to the benefit of the attorney or any other person other than the donor, or recover any expenses from the donor's property, unless the donor has specified the power in the EPA, or the court authorises the attorney.  This will not apply if:

• the donor and the attorney are married to, or in a civil union or de facto relationship with each other, and they share their incomes and jointly own property and assets; or
• the attorney is recovering professional fees and expenses for work done by the attorney in a professional capacity; or
• the attorney is making an investment that he or she is authorised to make under the Trustee Act 1956; or
• the expenses are for out-of-pocket expenses (other than lost wages or remuneration) reasonably incurred by an attorney.

The signature of an attorney must be witnessed by a person other than the donor or the donor's witness.

Independent legal advice

Under the changes to the Act, there are new requirements in relation to certification, independent legal advice and a new prescribed form.

The witnessing requirements for all new EPAs for both property and personal care and welfare are strengthened so that the donor's signature must be witnessed by a lawyer or authorised officer of a trustee corporation or legal executive engaged independently of the attorney.  The signature of an attorney must be witnessed by a person other than the donor or the donor's witness.

Before the donor signs the EPA, the witness must explain and advise on the following:

• the matters referred to in the notes on the prescribed form of power of attorney;
• the donor's right to suspend or revoke the power of attorney;
• and in relation to property:
  - the donor's right to appoint more than one attorney or a trustee corporation as attorney;
  - the donor's right to stipulate whether and if so how the attorney's dealing with the donor's property are to be monitored.

The witness is required to certify on the prescribed form:

• that the above requirements have been met;
• that the witness has no reason to suspect that the donor was or may have been mentally incapable at the time the donor signed the instrument;
• that the witness is independent of the attorney.

The signature of the attorney must be witnessed by a person other than the donor or the donor's witness.  The witness need not be a lawyer or qualified legal executive.

Conclusion

The amendments have strengthened the position of vulnerable donors.  They also amended the duties and restrictions placed on attorneys.  Importantly, the Act now specifies that the donor's interests are paramount and the donor has a right to be consulted.

© Harkness Henry & Co

Email annette.edwards@harkness.co.nz

Website http://www.harkness.co.nz/

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