Power of Attorney

Power of Attorney

A power of attorney (PoA) is a formal document giving another person the authority to make legally binding decisions on your behalf. There are two types of power of attorney: general power of attorney and enduring power of attorney. Broadly, an PoA authorises an attorney to do whatever legally and/or financially the donor of the power can do. A PoA is an instrument under State and Territory legislation which annoyingly can bring unnecessary complications and uncertainty when the assets of the donor reside in a different State or Territory to their PoA. Moreover, there is no consistency between the States and Territory legislation as to what an PoA covers.

General Power of Attorney

A general power of attorney is used to appoint someone to make financial decisions on behalf of a donor for a specific period or event, such as if the donor is going overseas. A general power of attorney can be used while the donor can still make their own decisions and ends once the donor loses capacity.

Enduring Power of Attorney

An enduring power of attorney (EPoA) is used to appoint someone to make financial and/or personal decisions on behalf of a donor. For financial decisions, a donor can nominate whether they want their attorney to make decisions immediately or at some other date or occasion, such as once the donor has lost capacity. An EPoA’s powers to make personal decisions only commences when the donor loses capacity.

What a PoA can’t do

From a planning perspective it is paramount to understand what a power of attorney can’t be empowered to do on behalf of a donor. These include:

• A PoA does not authorise a person to act as a trustee
• A PoA does not authorise a person to act as a company director or secretary
• A PoA does not authorise a person to make a will
• At common law a PoA does not authorise a person to make shareholder decisions, although this can be overridden by either the Corporations Act and/or a company constitution. In short it is mandatory for public companies to authorise a PoA to make shareholder decisions, if a shareholder is unavailable to attend a voter's meeting. Whether or not a PoA authorises a person to make shareholder decisions for a proprietary company is dependent on the company’s constitution.

PoAs and Death Benefit Binding Nominations

An EPoA does authorise a person to make a Death Benefit Binding Nomination (BDBN), although some superannuation trustees may not allow them to do so. Some superannuation trustees only allow a member’s EPoA to renew a lapsed BDBN but only if there are no changes to the expired BDBN.

SMSFs and EPoAs

One of the requirements for an SMSF to remain complying is that its members are also to be trustees (either individual trustee or a director of the corporate trustee). It is vital that SMSF trustees have a succession plan in place to ensure that their SMSFs remain complying in the event that one or more of their trustees become incapacitated. EPoAs are essential for SMSF trustees.

Since a Superannuation Fund is based on trust law and a trust deed governs a fund’s operations, there is no certainty that an EPoA will be recognised under the trust deed unless expressly provided for. Interestingly, only Tasmanian PoA legislation expressly recognises superannuation. Accordingly, it is best practice for an SMSF and an EPoA to expressly refer to super.

Our Comments

As we have hopefully highlighted powers of attorneys are a complex area of law and as such we highly recommend specialist legal advice. If you are looking for an estate planning specialist we are happy to refer you to one.