Powers of Attorney Law: Bankers Beware: New Powers of Attorney Law in NSW Has Significant Implications for Bankers and Financiers
Shtein, Oliver, Chen, Anny, Journal of Banking and Financial Services
A power of attorney is a legal document that allows a person (known as the "principal") to appoint another trusted person(s) (known as the "attorney") to attend to important financial and property matters on the principal's behalf.
A general power of attorney allows the attorney to do anything the principal could lawfully authorise an attorney to do. An enduring power of attorney is one that is signed by the principal with the intention that it will continue to operaLe, even if the principal should suffer a loss of mental capacity after the document has been signed.
The Powers of Attorney Act 2003, is mainly aimed at remedying problems with enduring powers of attorney--especially misuse of such powers by unscrupulous attorneys.
The Act has resulted in a new prescribed form of power of attorney and major changes in the law and practice relating to general and enduring powers.
The Act largely re-writes NSW statute law on powers of attorney, although general law principles will also apply. The Act will affect commerce and finance because powers of attorney are now likely to contain much tighter restrictions on benefits to attorneys and third parties, as well as on gifts. Financiers and others will need to be aware of these restrictions.
The position of existing powers of attorney
The Powers of Attorney Act 2003 will apply to powers of attorney signed on or after 16 February 2004. Existing powers of attorney signed under the old law will continue to be effective and the old law will continue to apply to them Also, some provisions of the new Act will apply to existing powers of attorney.
Prescribed new form of power of attorney The new prescribed form of general and enduring power of attorney is more detailed than the old form, and enables a principal to be more specific about the way the principal wants his or her affairs to be managed by the attorney. Notably, the new form clarifies the extent to which an attorney may make a gift, take a benefit or confer a benefit on a third party.
Because of its simplicity, the old prescribed form was widely Used. The old form was much simpler and allowed the attorney to provide (theoretically) unlimited benefits to the attorney or third parties. Misuse of such powers was difficult to undo, unless it was clear that the attorney had breached his of her duties.
As a general rule, the prescribed new form of power of attorney prohibits the giving of a gift, of the conferral of benefit, on the attorney or a third party. This is so unless the attorney is expressly authorised by the principal to give the gift or confer the benefit.
The Act also provides that if a prescribed power of attorney includes a summary form of words called a "prescribed expression", this will authorise the attorney to make the kinds of gifts or confer the kinds of benefits specified for that expression.
In summary, "prescribed expressions" authorise the conferral of benefits only where the benefits relate to expenses incurred by the attorney or third party in respect of housing, food, education, transportation, medical care and medication.
The benefits must also be not more than what is reasonable having regard to all the circumstances and, in particular, the principal's financial circumstances and the size of the principal's estate.
The new form also allows a principal to elect when the power of attorney comes into effect (immediately, for a specified period, when the attorney accepts the appointment, etc). The form will also contain some standard important information for principals and attorneys to assist them to better understand the legal implications of a power of attorney.
The new law provides for certain persons to explain, witness and certify enduring powers. One important change to the law is that if an enduring power of attorney is being signed, the attorney must sign the form before it can be used by the attorney. …