A Power of Attorney is a legal document authorising a person to act for you and make binding decisions on your behalf. A Power of Attorney is usually prepared:
1. to facilitate and complete transactions when you are unavailable to do so (for example, whilst travelling);
2. to get help with essential activities such as managing finances, withdrawing funds, paying bills and arranging goods and services, particularly as you become older and less mobile; and
3. to ensure somebody you trust can look after your financial and legal affairs if you become physically or mentally incapacitated.
Most jurisdictions in Australia accept a Power of Attorney validly made in another state or territory. Legislation, however, differs in each state and territory, so it is important to understand the effect of a Power of Attorney (or similar document) made under the relevant law.
A person who makes a Power of Attorney is usually referred to as the “principal” or “donor” and the person accepting the appointment is known as the “attorney”.
This article will discuss the potential abuse that can occur regarding Powers of Attorneys.
1. What is Power of Attorney abuse?
Attorneys must act in the best interests of the principal, maintain separate accounts and records and avoid a conflict of interest. The relationship between the principal and attorney should be one of implicit trust, particularly as attorneys are neither supervised nor required to report to a specific authority regarding the principal’s affairs.
a) act without proper consent;
b) act outside the scope of authority permitted by the Power of Attorney;
c) misappropriate a principal’s assets;
d) fail to act in the best interests of the principal;
are abusing their position.
Examples of Power of Attorney abuse include situations where an attorney may:
i) neglect paying for necessities on behalf of the principal;
ii) make decisions and take action without consulting the principal or, in the case of an incapacitated principal, fail to consult with those who are close to the principal;
iii) use the principal’s funds for his or her personal gain or to benefit somebody else;
iv) sell or transfer the principal’s assets for his or her financial benefit, or to benefit somebody else.
Unfortunately, this form of financial abuse is not uncommon and there are several cases where attorneys have misused their authority to the detriment of a principal. This often (but not always) occurs when the principal is aged and restricted in his or her capacity, and/or has granted an enduring Power of Attorney which continues to operate when the principal becomes incapacitated.
Although unimaginable to most, the perpetrator of this betrayal is often a family member or supposed close friend. The consequences can be financially and emotionally devastating for somebody who has placed enormous trust in an attorney to protect his or her interests. Family members and close friends who witness such abuse are also impacted.
Attorneys who abuse their power may be required to account to the principal for any loss sustained and face criminal penalties. Unfortunately, in cases where the abuse has been going on for some time, financial losses may not be retrieved.
2. Protecting yourself from Power of Attorney abuse
Choosing the right person to be your attorney and understanding your rights is important to help minimise the potential for Power of Attorney abuse.
The following points may assist:
A. Only appoint somebody you trust (even if that person is not a family member) and don’t be pressured into signing documents without understanding the nature of what you are signing and obtaining independent legal advice.
B. If you no longer feel comfortable with your appointed attorney, talk to your lawyer. You can revoke a Power of Attorney at any time provided you have legal capacity. The revocation should be in writing, and you should ensure that your attorney receives the document. Also provide copies of the revocation to any financial institutions or other entities the attorney has dealt with on your behalf.
C. Have a Power of Attorney prepared by a lawyer to ensure it is valid and works with any other estate planning documents you may have. Your lawyer should explain the different types of powers of attorney you can make, the scope of authority you will be giving, and when and in what circumstances your attorney may exercise that authority.
3.What to do when a Power of Attorney is abused
If you suspect your attorney is misusing his or her authority, you should obtain legal advice immediately. Your attorney may become evasive when you ask about receipts for transactions or query bank balances. Always apply the sniff test. If something doesn’t smell right, there’s a good chance that it isn’t. Speak up, tell somebody you trust, contact your lawyer or call a support service.
If the principal is incapacitated and the Power of Attorney is enduring, the process is a little more involved. An enduring Power of Attorney continues to be effective even if a principal becomes incapacitated due to disability or illness and may not, unless through specific orders, be revoked.
If you are concerned on behalf of someone else that his or her Power of Attorney is being abused, then you should consider taking action on behalf of the principal to protect his or her interests. In such cases, each Australian jurisdiction has protective laws and you should contact a lawyer if you are unsure.
In Victoria, the Victorian Civil and Administrative Tribunal (VCAT) exercises jurisdiction over Powers of Attorney. In other states and territories, similar bodies exercise jurisdiction (Civil and Administrative Tribunals, Public Guardian Offices and/or Courts) and they have powers to investigate, intervene, suspend or cancel a Power of Attorney, and to make a range of orders with respect to Power of Attorney disputes and guardianship matters. For example, a Power of Attorney can be reviewed by VCAT and orders can be made to declare that the principal did not have the mental capacity to make the document and it is therefore invalid. In such cases, a substitute attorney may be appointed to manage the principal’s affairs.
Other legal remedies may also be appropriate, such as lodging a caveat over real estate to prevent a transfer of property and starting proceedings to reverse the transfer, or for compensation for loss incurred.
Fraudulent conduct by an attorney may also be reported to the police.
Key Take Aways
1. Granting a Power of Attorney is an effective way to appoint somebody you trust to manage your legal and financial (and, in some jurisdictions, health and lifestyle) affairs for a limited time, or indefinitely, if you become incapacitated.
2. Appointing an attorney, and accepting the appointment, should be made with the utmost trust and with each party understanding their respective legal positions.
3. Attorneys must act in the best interests of a principal however may face conflict with family members or uncertainty when fulfilling their obligations.
If you are an attorney and are unsure of your role, or involved in a challenging situation, you should seek legal advice.
If you or somebody you know requires assistance to revoke a Power of Attorney and/or recover misappropriated funds, or if you want more information or advice, please call us on (03) 9592 3356, email us at email@example.com or contact us here.