A will ensures your assets are managed prudently when you die. A Power of Attorney (Power of Attorney) ensures your assets are handled properly by someone else when you are unable to due to legal incapacitation.
Here’s more on what you need to know about having a Power of Attorney including why it’s wise to have one.
Main types of a Power of Attorney’s
There are two types of Power of Attorney’s: Medical or Enduring.
A medical Power of Attorney or guardianship gives another person the power to make medical treatment decisions on your behalf should you be mentally or physically incapable.
An Enduring Power of Attorney gives another person legal authority to manage your finances when you are unable to do so.
Do you need a Power of Attorney?
The importance of having a Power of Attorney increases with time. When you start earning and having dependents, your finances and health are of utmost importance. Having a Power of Attorney creates a framework in case you are unable to make decisions about your health or finances. It ensures both your personal and financial affairs aren’t affected should eventualities in life incapacitate you.
A car accident that leaves you in a comma can leave you/your family financially vulnerable if you don’t have a Power of Attorney in place. If you travel often or live overseas for extended periods, a Power of Attorney will also come in handy. It can help you manage your finances and assets effectively from a distance especially when managing those finances/assets requires original signed documents.
Nominating someone to handle such matters when you are away is easier than disrupting your engagements with paperwork, phone calls, and even plane rides to/from Australia.
For this reason, Power of Attorney’s aren’t just important for later stages in life like Wills. When preparing your will, get your Power of Attorney organised as well. In fact, most attorneys bring up Power of Attorney’s when discussing Wills.
Who should act as your Power of Attorney?
It’s critical to choose someone who is best suited to make prudent decisions or act in your best interests in your absence. It could be a family member (sibling/child/grandchild), close friend or a reputable/trusted professional. It’s vital they are someone you trust.
They should also be experienced in finance and have adequate knowledge of your financial holdings and the consequences of any decisions they make. This, of course, applies to a Power of Attorney meant to manage your finances/assets in your absence.
It’s worth noting that you can have many attorneys in your Power of Attorney, i.e., both parents or more than one sibling or child. In fact, this is advisable since it allows many loved ones to share the responsibility of handling your personal/financial affairs which brings more expertise and passion to seemingly complex problems/decisions.
When should you choose a friend?
If your family members lack the capacity to act as your attorneys, you don’t have a good relationship with them and/or don’t trust them with your money; you can give the responsibility to a close friend. But most importantly, whoever you choose must understand and accept their role.
Other important considerations
If you already have a financial planner, it is important to have them meet your attorney/s to enable a smooth transition when/if the time comes for them to act.
Setting up a Power of Attorney arrangement
Every state/territory in Australia has an agency that offers advice on Power of Attorney arrangements. The arrangements are legal and involve you and your nominee signing documents acting as proof of your nominee’s legal authority to take action/make decisions on your behalf.
Important: The power of a legally appointed individual as an attorney in a Power of Attorney can still be questioned. Financial institutions are reluctant to act on Power of Attorney’s given the prevalence of elder abuse cases. These developments have led to a recent government proposal in the 2018/2019 Federal Budget announcement.
The Australian Government is planning to work with all states and territories to establish a national register for Enduring Power of Attorney arrangements. This online register will go a long way in reducing instances of financial abuse resulting from false claims by individuals wanting to act under a Power of Attorney.
The importance of a Power of Attorney can’t be overlooked even in the presence of a Will. In fact, Power of Attorney’s are as important, if not more important than Wills given life’s uncertainties and the effects of those uncertainties on your personal/financial health as well as those of your loved ones.
If your children/siblings/friends are going to manage your money or make important decisions on your behalf in the future, it’s important to start an open conversation with them. The same applies to parents who will rely on you to manage their personal/financial matters in the future in case of anything.