What are enduring powers of attorney Michael and why do you need them?

Michael: Enduring powers of attorney involve someone appointing another person to act for them when they aren’t able to make their own decisions. They might be overseas or temporarily incapacitated, by an accident or something like that, so you’ve got someone who can look after your affairs when you can’t.

Firstly, they are called “enduring powers of attorney” for a reason. The “enduring” bit means that they endure beyond your mental incapacity. If you lose your mental capacity these powers of attorney carry on whereas an ordinary power of attorney does not survive the person becoming incapacitated. If someone holds an ordinary power of attorney they must declare that the person whose attorney they hold is able to affirm it. If they can not affirm it due to incapacity the power of attorney is null and void.

Rhodes: Michael, can I just ask you, what’s mental capacity?

Michael: Mental capacity is when you cannot rationally make decisions that a normal person would, or they can’t, for some reason. It often happens with dementia or that sort of thing, or brain injuries where people can’t rationalise things, where they would not be able to do what is in their best interests.

Rhodes: Thank you. I interrupted you story ...

Michael: There are two forms of enduring powers of attorney. The personal care and welfare version is really about the decisions that can be made for your medical treatment mainly.

This power of attorney only gets activated if you are certified by a doctor as not having mental capacity. It sits there dormant once you make it, until such time (one hopes that it never gets activated) but if it does, whoever you have appointed to act for you, they will act in your best interests and will make the right decisions about the life you lead. Where you are going to live, if you go into care, and all your medical treatment and surgery, those sorts of things.

There are some restrictions on what that person can do.

The other form of enduring power of attorney covers personal property. It is different in that most people would always have their enduring power of attorney for property activated rather than just when they become mentally incapable. The reasons for that are that you may go overseas on holiday and lose your visa card so you’ve got someone in New Zealand that can pop into the bank as your attorney, and sort it out for you. Or, you know, pay bills or whatever.

The other use we see where people have still got their capacity but they have become elderly and a bit infirm and don’t want to be dealing with paying bills and things and they’ve got someone, a child perhaps, that is their attorney who can do that work for you.

Rhodes: By property, Michael, what do you mean?

Michael: OK, so the word property, people might think “Oh, it’s where I live,” but it is more than that. It is everything that they own.

Rhodes: Right, everything they own in their own name. What about family trust property?

Michael: It’s everything the person owns. It does not cover anything that is in a company or trust.

Another thing that people need to be aware of when they are making the powers of attorney are who owns what property. A couple may have investments and some of the investments may be in the name of one of the partners, one spouse and not the other, but they’re both living off that. Under the Act that powers of attorney come under, it only makes provision for jointly owned property. So if you’ve got a couple who are living off the assets of one of them, then you need to make sure that the power of attorney covers them, otherwise you don’t have any legal access to those funds.

Rhodes: Oh, it can get tricky Michael.

Michael: Yes, very tricky.

Rhodes: But I can see it is essential because again if you leave it, if you don’t put this in place in time, once you are unable to make your own decisions, it’s too late.

Michael: It is too late, yes.

Rhodes: And it can become expensive.

Michael: Yes, yes. You must have capacity, mental capacity at the time you make them and that’s for the lawyer to judge and if we have any doubts, we generally ask the person to be assessed.

Some people have memory losses, but they still have capacity to do their enduring power of attorney, because they will have lucid moments. So, the threshold is reasonably low. So long as they know what they’re doing it’s okay. It is decided on a case by case basis. There is no strict rule that covers everyone. As long as they do seem to have capacity they can make their enduring power of attorney. If they do not have capacity, then someone is going to have to apply to the family court to be the manager for that person. And it is often lawyers, generally lawyers who are appointed, and they must report to the court and it’s an expensive process.

Michael: Yes, so that is best avoided. Spend some time and money today and protect yourself.

Rhodes: Of all the things that we do as financial advisers, asking people if they have enduring powers of attorney in the first place, reminding people, then finding out that they have not done anything about them, asking them to go and do it again, emailing their lawyer, reminding them at their first anniversary, reminding them at the second, third, fourth, you know, we’ve gone on ten to twenty years and people have still not seen it as important enough to get it done. I have just been involved in a case where the final trappings on their enduring power of attorney, were completed days before they became incompetent, hours before they became incompetent. It is so sad because there is the risk that a lot of unnecessary expense and time would be required if it was not completed in time. Do it now.

Michael: Yeah, it is a real risk.

Rhodes: So, at what age should someone put an enduring power of attorney in place Michael?

Michael: Ah, 20. But any time past 20. A lot of people think, that oh it’s only for old people, but it’s not. It is for everyone. I unfortunately spend a bit of time seeing people in rest homes and it’s amazing how many younger people are in their who have had medical events or accidents and require full time care. So you don’t have to be elderly to need powers of attorney. You never know if you are going to have a medical event or something that’s going to incapacitate you.

Rhodes: We had a relatively young client who had a car accident and happened to have an enduring power of attorney in place and that has been a lifesaver but most clients we meet for the first time, they don’t have them.

Michael: Yes, some institutions are requiring them now. If you go into a rest home or retirement village, it’s a requirement, you must have them, which is good.

But even hospitals and things now are starting to push for it so at some stage in the future it’ll become more commonplace than it is at the moment as it really is an important tool in the protection armoury.

Rhodes: It is a reasonably recent update to the Act too.

Michael: It is a 1988 Act but it’s been updated some several times

Michael: Yes. The forms themselves are now a standard government issue that everyone uses. They have produced some standard explanations which you can actually see online on the Ministry of Social Development website.

Rhodes: The forms are a bit onerous, aren’t they?

Michael: They can be. There are lots of things to think about on the way through the forms. Some people appoint each other, and they might be eighty, well, what is the point in that? And not think about, you know, what happens if we both become mentally incapable. You have to think through consequences.

Rhodes: And a lawyer will guide you through that because you would appoint your spouse but then if they are not capable then you appoint someone under them and perhaps even a third.

Michael: That’s right, yes, you can put successors in so you’ve got a chain. Generally don’t go beyond a second level but you can go to three levels just to make sure you are safe because you know if you do lose your medical capacity, then it’s too late to add people. You can’t change anything.

Rhodes: Thank you Michael. That’s a brilliant topic. It’s part of the work we’re doing all the time, reminding people to get these done, pushing them along. It is an essential tool, like a will, and I think that’s a really good summary you have given us today. Thank you for your time Michael

Michael: Thank you Rhodes.

Keep asking great questions …