What you need to know about powers of attorney 

As we get older, estate planning becomes more important than ever.

While many retirees in Australia address crucial elements such as their finances, superannuation and wills, they often overlook one key legal document – a power of attorney. This oversight is risky as a power of attorney can protect your money, ensure your health decisions are respected, and give you and your family peace of mind if a life-changing event occurs.

This a legal document that lets you choose someone you trust to make decisions on your behalf if you cannot do so yourself. The ‘attorney’ role typically falls to a person you trust.  This might be your spouse, an adult child, a friend or another trusted person such as a lawyer. In the event of an accident or illness, they can ensure your everyday affairs are still managed appropriately and according to your wishes. Without a power of attorney, your family may have to go to court or a tribunal to get permission to act on your behalf. This process can be stressful, laborious and expensive.

Importantly, a power of attorney is only valid while you are alive.  Therefore it is not a substitute for a will.  

While each state and territory has its own rules and names, there are two broad options.

1. General power of attorney

Also known as a non-enduring power of attorney, a general power of attorney enables a designated individual to manage your financial and legal affairs for a set time or purpose; for example, while you are overseas, temporarily ill, or in hospital. Tasks typically include paying bills, managing bank accounts, or, in a person’s absence, signing financial contracts and overseeing related settlement transactions. Remember, though, that a general power of attorney usually ends if you lose mental capacity.

2. Enduring power of attorney

An enduring power of attorney continues to be valid if you lose capacity, so your attorney can keep managing your finances and personal affairs if you cannot. This could include managing investments, paying aged care fees, maintaining a property, or even dealing with Centrelink for welfare payments. You may choose when to let the Enduring power of attorney take effect – that is, immediately, or only when you lose capacity. In most cases, an enduring power of attorney is used in the latter scenario, such as if you get dementia, or fall into a vegetative state. For this reason, it is vital to have this document in place and an attorney ready to act.

There are other powers of attorney to consider and the terminology can sometimes be confusing. For example, you may hear people refer to a financial power of attorney, but it is not a formal legal category in most Australian states and territories. It describes a general power of attorney that is limited to financial matters.

Australian states have what is commonly referred to as a medical power of attorney, or enduring guardianship, which allows you to appoint an attorney to make medical or health-related decisions. This power includes making choices about medical care, treatments and living circumstances.

Then there is a limited power of attorney, or special power of attorney, which provides the narrowest scope of authority. It lets an individual act on your behalf for a single, specific task, or for a predetermined, short period. For instance, you could grant someone the authority to sign documents for selling a property while you are out of the country, while ensuring that other aspects of your financial life are kept separate.

The best time to set up a power of attorney is when you are mentally able.  Once a person has no capacity to make a PoA, they are unable to. Discussing a power of attorney with lawyers, and including family members in the conversation, often reduces stress for all parties and helps ensure your wishes are understood and respected. 

In the next article, we will answer some of the most common questions retirees have about powers of attorney.

To see how you can budget for life and retirement goals, speak to your Mercer Financial Adviser.