What happens when your circumstances change? If a loved one suddenly becomes ill and loses capacity, what becomes of their affairs? What is the outcome if they do not have their affairs in order? 

What is a power of attorney? A power of attorney is a legal document which enables you (the “principal”) to appoint and authorise one or more persons (attorney(s)) to make decisions concerning your legal and financial affairs. There are two types of power of attorneys, a general power of attorney and an enduring power of attorney. A general power of attorney ceases to operate once the principal loses mental capacity, whereas the enduring power of attorney continues to operate after the principal loses mental capacity.

What happens when someone suddenly loses capacity? It is important to make a power of attorney before you need it. Once you have lost mental capacity, you cannot make a power of attorney because, for it to be effective, you must be able to fully understand what you are signing. This can often create difficulty for close family members who wish to help manage the person’s financial affairs as they do not hold the legal authority to do so. Certain institutions such as banks will not allow for another person (including a family member) to access or obtain information from the principal’s accounts without an authority to do so.

The only way to overcome this is for a close relative or friend to apply to the NSW Civil and Administrative Tribunal (Guardianship Division) to have someone appointed as a financial manager. A financial manager is then authorised to make decisions regarding the principal’s property and finances. However issues may arise through this process:
• It is expensive with regular fees charged for the appointment of a financial manager
• It is a formal legal process conducted through a tribunal hearing which may take a considerable amount of time
• The tribunal has the ultimate say as to the appointment – which may not be the applicant themself. The NSW Trustee and Guardian can be appointed if the applicant is deemed not fit for the appointment. This may not be the outcome the principal would have preferred had they held capacity to make an appointment for attorney.
• Conflict may arise between close family and friends who are concerned with the appointment of someone else.

The solution?

You should make a power of attorney before you need it. This allows for your affairs to be managed according to your wishes in the event you do lose mental capacity.

Your appointment of attorney however should not be taken lightly. You should choose someone who you trust and who would deal with your finances in align with your best interests. A close relative or friend may be appropriate or possibly the NSW Trustee and Guardian or a professional.

This article is general information only and should not be relied on without obtaining further specific information.

Author: John English