One of the questions most people answered incorrectly from our recent Financial Literary Quiz, is on the difference between a Power of Attorney and an Enduring Guardianship.
It’s not a topic everyone likes to think about – the possibility of losing the capacity to make decisions about your finances, health and lifestyle, which is a daunting prospect. In all Australian states and territories, it is possible to maintain some level of control by either appointing someone you trust to act on your behalf or documenting what your wishes would be if you faced this decision.
Let’s go back to the beginning and look at the types of arrangements that can be put in place and what they can be used for. These include General Power of Attorney, Enduring Power of Attorney, Enduring Guardianship and Advanced Care Directives (or Advanced Health Directives). The legislation which governs the making of such documents is state and territory based so it is important to check if the arrangement is available in your state and the formal documentary requirements as they vary between jurisdictions.
Power of Attorney
Many people know the importance of drafting a Will so their finances will be distributed according to their wishes once they pass this world. However, not many people have thought about what would happen to their finances if they lost the capacity to deal with their financial affairs. One of the most important tools to ensure peace of mind and security is through a Power of Attorney.
What is a Power of Attorney?
A Power of Attorney is a legal document by which a person or company confers authority to another person to manage their assets and financial affairs when they are unable to act for themselves. This might include paying bills from a bank account or selling property. A Power of Attorney specifies what may and may not be done by the appointed person.
The person who gives the Power of Authority is called the principal or donor, whilst the person to whom the power is given is called the donee, attorney or attorney under power.
There are two types of Power of Attorneys; General Power of Attorney and Enduring Power of Attorney.
General Power of Attorney
A General Power of Attorney will only operate while you are still mentally capable of making financial decisions. It is usually given for a specific period of time, for example, if you are going to be in hospital, or when you travel overseas and temporarily unable to manage your financial affairs while you’re absent, etc.
A General Power of Attorney continues until:
- A time that has been specified in the future;
- Revoked by the principal or donor;
- The principal or donee loses mental capacity;
- The principal or donee dies.
Enduring Power of Attorney
The main difference between a General Power of Attorney and an Enduring Power of Attorney is that an Enduring continues even after you’ve lost mental capacity. An Enduring Power of Attorney must be made while you have the mental capacity to do so. You cannot make an Enduring Power of Attorney after you have lost the capacity to make your own decisions. Therefore, it is important to do it when you are healthy.
It is important to remember that both a General and Enduring Power of Attorney authorises the donee to make decisions relating to your assets and financial affairs only. They cannot make decisions about your medical and lifestyle choices.
Enduring Guardianship
An Enduring Guardian is someone you appoint to make lifestyle, health and medical decisions for you when you are unable to do so. An Enduring Guardianship only comes into effect if or when you lose capacity and only for the period that you lose capacity. You may never need to use it but it is an important document to have, should unforeseen circumstances occur.
Health Directives
An Advanced Care Directive or Advanced Health Directive is not a legal document, but it works alongside an Enduring Power of Attorney and Enduring Guardianship to give guidance on difficult health decisions, which the people you have appointed will need to make on your behalf when you are unable to do so.
A General or Enduring Power of Attorney, Enduring Guardianship or Health Directives do not need to be registered with any organisation. However, if you are using a Power of Attorney to sell property, it needs to be registered with the Land Registry Service.
It is never easy having to think about the possibility of losing capacity to make your own decisions in life, but having a plan for any unforeseen circumstances brings peace of mind knowing that you will be prepared.
It is important that you check the legislation in your state to ensure you have the proper arrangements, or contact a professional if you need help.
What Can Align Financial Do For You? Visit our homepage to learn more about our service. If you would like to speak to us about your financial circumstance, please feel free to give us a call on 02 9913 9995. We are located in Narrabeen on the Northern Beaches of Sydney.
Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us online.
