If you lose the capacity to handle your own affairs, you’ll need someone to do it on your behalf. But you need to arrange this ahead of time. We explain what a power of attorney is, how you set it up, what to look out for, and what your obligations are if you become an attorney for someone else.
What is “power of attorney”?
Power of attorney is an authority by which one person (the “donor”) gives authority to someone else (the “attorney”) to act in their name.
Why use it?
The idea of someone else being able to sign your cheques, cancel your insurances, even sell your home, would be a nightmare in most circumstances. But if your health deteriorates or you go overseas and are unable to run your own affairs, having someone else to help can be a godsend.
Many people think their partner will be able to step in automatically but that isn’t the case. Even if you’ve been married 50 years, your spouse will not be able to deal with any accounts, policies or possessions if they are in your own name. They’d need to go to court to be given that power. This could take months and cost thousands of dollars.
The best option is to arrange power of attorney in advance. It must be made while the donor’s mental capacity and judgment still allow them to understand what they are doing.
Types of power
There are two broad types of powers: “ordinary” and “enduring”.
- Ordinary powers are best used for temporary purposes – for example, if you’re going overseas and want someone to be able to send you cash from your accounts or to pay bills here.
- Most advisers recommend an enduring power of attorney for longer term protection. This works after you’ve become mentally incapable, while an ordinary power would lapse. Enduring powers of attorney can relate to property or your personal care and welfare. One attorney can act in relation to both property and care and welfare.
Revoking an enduring power of attorney
You can vary, suspend or revoke an enduring power of attorney while you’re still mentally capable. There are different procedures surrounding each of these actions. Legal advice should be sought, especially in regard to revocation.
The Protection of Personal and Property Rights Act 1988 sets out requirements for enduring powers of attorney.
Attorney for property
An attorney who deals with your property can write your cheques, roll over term deposits and even sell your home, depending on the power given or excluded in the document.
You can appoint more than one attorney to deal with your property, or use a trustee company such as Public Trust.
The arrangement must state whether the power of attorney will have immediate effect or if it will come into effect only if you become mentally incapable. You are “mentally incapable” in relation to property when you are not wholly competent to manage your own affairs.
Many lawyers recommend that the document have immediate effect because of the costs and difficulties of proving lack of capacity.
There are measures you can take to protect yourself and reduce the risk of problems arising.
Appoint two attorneys. Appointments can be made “joint but not several” meaning neither attorney can act without the knowledge and approval of the other. The problem with requiring joint authority is that if one attorney is out of contact or incapacitated, the other can’t act alone. The enduring power of attorney will cease to have effect if one of the attorneys dies and the court revokes the appointment, or if one attorney becomes bankrupt or mentally ill. There will also be a problem if the joint attorneys can’t work together. Careful choice of joint attorneys is crucial.
Appoint a professional or a trustee company. An institution will be independent and will provide a check on an individual attorney. There will be ongoing professional costs for the work done.
Restrict an attorney’s powers. Instead of giving an attorney full powers, you can limit of what they can do. For example, you can choose to give your attorney power to access your accounts but not sell your house. But don’t go overboard with this. Having an attorney hamstrung with countless restrictions while you’re unable to look after yourself could be as bad as having no attorney at all.
You can also name parties with whom the attorney must consult before making decisions. The final decision still lies with the attorney, but the requirement of consultation can provide reassurance that the right decision will be made.
If significant sums of money are involved, two attorneys or an institution should be appointed.
Personal care and welfare
Only a private individual can act as an attorney for personal care and welfare. They have no control over money so must consult and work closely with the attorney for property. It’s important to select attorneys that are able to communicate and work well together.
An attorney for personal care and welfare can’t act in relation to a significant matter unless a relevant health practitioner has certified, or the court has determined, that the donor is mentally incapable. You will be considered mentally incapable where you lack the capacity to make or understand decisions in relation to your personal health and welfare.
The attorney also can’t act in relation to other matters unless they believe on reasonable grounds that the donor is mentally incapable.
You may want to limit their authority in matters such as moving in to rest-home care. But you need to ensure the attorney has enough flexibility to deal with situations that you might not envisage. If the authority is too prescriptive, their ability to deal with changing circumstances could be undermined.
You can also name parties with whom the attorney must consult before making decisions.
The personal care and welfare attorney can’t make decisions about marriage or divorce, electro-convulsive treatment or refuse to consent to life-saving medical action.
Appointing an attorney
You can choose practically anyone as your attorney, though to get enduring powers they must be 20 or over when taking on the role, a New Zealand resident, not bankrupt and not be suffering from any legal incapacity.
People often choose their partner as attorney, especially for personal care and welfare. If you are single, choose a trusted relative, friend, solicitor or accountant who is healthy and likely to outlive you, or (for property) a trustee corporation. Professionals will charge for their services, typically on an hourly basis for work done.
Consider whether the attorney has the skills, judgment and time to handle your affairs. Be aware that family members may find it difficult to act impartially, or may be influenced by other relatives.
Once you’ve appointed an attorney, avoid later misunderstandings by making sure that close friends and family members know.
Standard forms must be used for granting enduring powers of attorney. You can get these forms from the Office for Senior Citizens website and from lawyers and trustee companies.
Witnessing the document
The witnessing requirement for enduring powers of attorney was strengthened by the amendment of the Act in 2008. Your signature must now be witnessed by one of:
- a lawyer
- an authorised officer of a trustee corporation
- a Registered Legal Executive with at least 12 months experience and employed by a lawyer
A ‘certificate of witness’ to your signature must be attached to the form. The certificate confirms that certain matters have been explained to you before you signed, that the witness is independent of the attorney, and that the witness has no reason to suspect you are mentally incapable.
Setting up an enduring power of attorney used to be free. That came to an end in 2008 when the law was changed to clamp down on attorneys misusing their powers. Anyone setting up an enduring power today has to get legal advice. This means there’ll usually be a bill to pay.
The requirement for the donor to get legal advice has sparked criticism the process is now too costly. The way the law’s been interpreted means a couple who want to give each other enduring power of attorney need to get separate legal advice – and that’s meant going to two different law practices or trustee corporations and paying two bills.
The government’s responded to complaints by tweaking the law. An amendment introduced in July 2010 means two people appointing each other as mutual attorneys can now seek advice from the same law firm or trustee corporation. This should make the process cheaper – at least for some.
However, you could still be faced with a bill from more than one firm. That’s because the law requires the person giving legal advice to be independent from the person being appointed as attorney. If the legal adviser has previously acted for the attorney, then there could be a potential conflict of interest and another adviser will have to be found.
We think the government needs to look at making the process cheaper and easier for everyone.
Some law firms may be willing to prepare an enduring power of attorney for free if you’re doing other business with them. But in most cases, you’ll have to pay. You should be able to speed up the process and cut down on costs by doing the groundwork before you seek advice.
If you use a trustee company to prepare an enduring power of attorney, charges start from around $150 to $290 depending on the company. If you use a lawyer, fees will usually be based on an hourly rate or a task-based rate.
Before you sign-up, ask what the fees are likely to be. Lawyers must provide you with information in advance about their charges. Some community law centres may prepare enduring powers for a small charge. Check with your nearest centre.
Being an attorney
If you are appointed as an attorney, you have certain key obligations you must meet.
Act in the donor’s best interests
Property: You must use the donor’s property to promote and protect their best interests, and encourage them to develop the competence to manage their own property affairs. You must keep records of each financial transaction entered into under the enduring power of attorney while they’re mentally incapable.
Personal care and welfare: You must promote and protect the welfare and best interests of the donor. You need to encourage them to understand decisions relating to their care and welfare, and encourage them to act on their on behalf wherever possible. You must also help them integrate into the community – for example, by contacting organisations who provide support and recreational activities.
Duty to consult
You must, as far as is practicable, consult both the donor and any person that has been specified in the enduring power of attorney. An attorney for property should always consult with the donor unless there is a medical reason preventing their understanding.
If separate attorneys are appointed for property and care and welfare, both attorneys must consult regularly to ensure the donor’s interests are not prejudiced through any breakdown in communication between them. The property attorney must give the personal care and welfare attorney any financial support required to carry out their duty. The care and welfare attorney must consider the financial implications of any decision in respect of the donor’s property.
Provide information on exercise of powers
You must provide information when requested if the person making the request is a lawyer appointed by the Family Court or is specified in the enduring power of attorney.
Attorney’s power to benefit
While a donor is “mentally incapable” an attorney can only act to benefit the donor, unless it is provided for or authorised by the Family Court. When creating the power of attorney a donor can specify provisions for when an attorney can benefit themselves or others. They may, for example, wish to authorise the attorney to assist a child with a particular problem.
The attorney is able to recover out-of-pocket expenses reasonably incurred and professional fees. Receipts or other reasonable evidence must be provided.
The Family Court has broad powers to monitor the performance of an attorney, vary the terms of the arrangement and if necessary revoke the authority.
The Family Court can review any decision made by an attorney while the donor is mentally incapable. It can review a decision by taking such actions as examining account and transaction records.
The Family Court can revoke an appointment of an attorney if it is satisfied:
- an attorney is not acting in the best interests of the donor
- an attorney is failing to comply with certain obligations
- the donor of an enduring power of attorney was induced by undue influence or fraud to create the power.
The Court will not automatically monitor the performance of an attorney, it must receive an application for review. An application can come from a range of people including a relative, medical practitioner or anyone the Court gives leave to do so.