There is no doubt that improvements in health care techniques in recent decades has resulted in Australians having a longer average life expectancy than previous generations.

However, one of the unintended consequences of improvements in health care and increased life expectancy is the increasing prevalence of degenerative mental disorders, particularly among elderly Australians.

For example, according to statistics published by Alzheimer’s Australia:

  • there are currently over 321,000 Australians living with dementia;
  • without a medical breakthrough that figure is expected to rise to over 900,000 by 2050;
  • approximately 1,700 new cases of dementia are diagnosed in Australia each week; and
  • an estimated 1.2 million Australians are caring for someone with dementia.

Legal consequences of mental impairment

Given the increasing number of people suffering from mental impairment, it is not surprising that laws relating to substitute decision-making have been created and are constantly being monitored, in an effort to protect the more vulnerable members of our society.

One of the primary legal responses to the issue of the increasing prevalence of mental impairment in the Australian community has been the development of the concept of “enduring power of attorney”.

Importance of enduring powers of attorney

An enduring power of attorney is a document that allows a person to appoint one or more attorneys to make any financial or personal/health decision that the person could have lawfully made, in the event that he or she becomes mentally incapable.

An enduring power of attorney is an important estate planning tool, as it provides a mechanism by which the affairs of a person with impaired capacity can be appropriately managed.

Protection of the interests of persons without capacity

An enduring power of attorney has far-reaching implications, because the document will be used in circumstances in which the person who made the document has lost the capacity to make decisions for himself or herself, and is therefore vulnerable.

For that reason, following the execution of an enduring power of attorney, the attorney is required to sign an “attorney’s acceptance” to acknowledge that he or she agrees to take on the responsibility of exercising the power they have been given by the document according to law.

Further, in order to protect the interests of persons whose capacity is impaired, the law imposes a wide range of duties on attorneys.

Attorneys should fully acquaint themselves with their duties before agreeing to take on the role, as these duties can be onerous.

The duties of attorneys

Broadly, the duty of an attorney is to act in the best interests of the person who made the enduring power of attorney.

This broad obligation is made up of a number of more specific duties.

1. The duty to exercise the powers conferred by the enduring power of attorney honestly and with reasonable diligence to protect the impaired person’s interests.  This obligation requires an attorney to attend to matters such as:

  • paying the impaired person’s outstanding bills on time;
  • ensuring that the impaired person’s property is appropriately insured;
  • submitting income tax returns on the impaired person’s behalf;
  • if the impaired person has a self-managed superannuation fund, ensuring that the fund remains compliant with regulatory requirements, as failure to do so could result in the fund losing the benefits of concessional tax treatment; and
  • ensuring that the impaired person has accommodation, care and support that is appropriate to his or her needs.

2. The duty to obey any limitations or restrictions contained in the terms of the enduring power of attorney. For example, an enduring power of attorney may:

  • specify that the attorney’s power to make decisions in relation to financial matters commences immediately upon the execution of the document, or only at a later date or on the occurrence of a particular event, such as when the person who made the enduring power of attorney is medically certified to no longer have the mental capacity to understand their affairs; or
  • contain specific directions as to how the impaired person’s affairs are to be managed.

3. The duty, if two or more attorneys are appointed to act at the same time (whether jointly, severally or by majority), to consult with one another on a regular basis to ensure that the interests of the impaired person are not prejudiced by a breakdown in communication between the attorneys.

4. The duty to keep appropriate records of all financial transactions entered into pursuant to the enduring power of attorney.

5. The duty, subject to specific exceptions, to ensure that the impaired person’s assets are only invested in “authorized investments” as defined by the Trusts Act 1973 (Qld).

6. The duty to ensure that the performance of the impaired person’s investments is reviewed at least once each year.

7. The duty to keep the attorney’s property separate from the property of the impaired person.

8. The duty to avoid entering into any “conflict transactions“, unless specifically authorized to do so. Conflict transactions are defined as transactions where there is, or may be, conflict between:

  • the duty of the attorney towards the impaired person; and
  • either (a) the interests of the attorney or a relation, close friend or business associate of the attorney; or (b) another duty of the attorney.

9. The duty to comply with the general principles set out in the Powers of Attorney Act 1998 (Qld) when making decisions on behalf of the impaired person. These principles include, but are not limited to, the following:

  • the attorney should exercise his or her powers in a way that is appropriate to the impaired person’s characteristics and needs;
  • the impaired person has the same basic human rights as all other adults, regardless of his or her capacity;
  • the impaired person has the right to respect for his or her human worth and dignity as an individual;
  • the impaired person has the right to be a valued member of society;
  • the impaired person has the right to participate in decisions affecting his or her life to the greatest extent practicable;
  • the impaired person’s right to make his or her own decisions must be preserved to the greatest extent practicable;
  • the impaired person’s existing supportive relationships should be maintained to the greatest extent practicable;
  • the impaired person’s cultural and linguistic environment and values should be maintained to the greatest extent practicable;
  • the impaired person should be encouraged to achieve his or her physical, social, emotional and intellectual potential, and to become as self-reliant as practicable;
  • the impaired person should be encouraged and supported to live life as part of the general community and to take part in activities enjoyed by the general community;
  • the impaired person should be encouraged and supported to perform social roles that are valued in society.

10. The duty to comply with the health care principle established by the Powers of Attorney Act 1998 (Qld) when making decisions in relation to health matters on the impaired person’s behalf. The health care principle requires that the attorney’s power in relation to health matters should be exercised:

  • in the way that is least restrictive of the impaired person’s rights; and
  • only if the exercise of the power is (a) necessary and appropriate to maintain or promote the impaired person’s health or wellbeing; or (b) in all the circumstances, in the impaired person’s best interests.

The impaired person’s views and wishes must be sought and taken into account to the greatest extent practicable, along with the information given by the person’s health provider.

Consequences of failure to comply with duties

In the event that an attorney fails to comply with his or her duties, the Supreme Court of Queensland or the Queensland Civil and Administrative Tribunal have the power to make appropriate orders, declarations and directions to protect the impaired person’s interests, including the following:

  • an order that the attorney be removed from his or her role;
  • an order that the attorney pay compensation to the impaired person, or his or her estate;
  • the imposition of fines on the attorney; and
  • an order that the attorney pay the costs of the proceeding.

Other matters to which attorneys should have regard

Recent court decisions have also highlighted a range of other matters in relation to which attorneys must be mindful, including:

  • the impact of the sale by the attorney of property owned by the impaired person on gifts in the impaired person’s will; and
  • whether or not to engage in litigation on behalf of the impaired person.

Impact of an attorney’s actions on the impaired person’s will

There have been a considerable number of cases in recent years concerning “ademption” of gifts in the wills of impaired persons due to financial transactions entered into by attorneys.

In these cases, the impaired person has made a will leaving a specific piece of property to a beneficiary, and that property has been sold by the attorney prior to the impaired person’s death, with the result that the gift in the will has failed.

Because of the adverse impact that financial transactions entered into by attorneys can have on the interests of beneficiaries named in the impaired person’s will, it is essential that an attorney:

  • obtain a copy of the impaired person’s will; and
  • consider the impact on any specific gifts in the will when deciding whether or not to sell property during the impaired person’s lifetime.

Disappointed beneficiaries are entitled to bring a claim for compensation out of the impaired person’s estate for loss associated with the sale of the property they were to inherit, had it not been sold by the attorney.

Litigation on behalf of the impaired person

Attorneys have the right to engage in legal proceedings on behalf of an impaired person, and compliance with their duties may require that they do so. For example, an attorney may need to consider:

  • whether to commence proceedings seeking compensation for personal injuries suffered by the impaired person;
  • whether to commence or defend proceedings in relation to contracts entered into by the impaired person;
  • whether to commence or defend proceedings for divorce and matrimonial property settlement on behalf of the impaired person;
  • whether to commence a family provision application on behalf of the impaired person;
  • whether to apply for apply for a statutory will to be made for the impaired person.

Attorneys should always seek advice in carrying out their duties

In light of the potentially onerous duties with which attorneys must comply, and the potentially severe consequences of failure to comply with those duties for both the attorney and the impaired person, it is prudent for an attorney to obtain appropriate legal and accounting advice before making any significant decisions on behalf of an impaired person.

If you are an attorney seeking advice on your responsibilities in acting on behalf of an impaired person under an enduring power of attorney, please contact a member of our Wills & Estates team by clicking here.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

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