When is the timing right?

Posted on 1 August 2017

We all know an Enduring Power of Attorney (“EPOA”) is something we should all consider but knowing when to make one is equally as important.

Stephen’s wife, Alison, has recently been diagnosed with dementia. Alison had always been the more “financially savvy” so now Stephen is now looking to try and simplify their financial affairs so that he can spend more time caring for Alison rather than their finances.

Stephen wants to close their joint bank account but to do he requires the consent of both account holders. As Alison does not have capacity to consent and Stephen does not have an EPOA, Stephen’s only option is to apply to the NSW Civil and Administrative Tribunal to appoint a financial manager for Alison in relation to that joint bank account and in relation to her other finances.

Having an independent third party come into the picture especially in this sensitive situation can be particularly difficult. This can be circumvented by having an EPOA over your spouse’s financial affairs.

It is therefore very important to consider the timing of making an EPOA.

Your attorney’s power under an EPOA continues after you have lost the mental capacity to make decisions about your financial affairs. The EPOA document will also need to be explained to you by a “prescribed witness”- examples of which include a solicitor of any state or even a legal practitioner qualified in a country other than Australia.

The legal test for mental capacity is independent from the more commonly regarded medical test. The 2012 NSW case of Scott v Scott held that the legal test of gauging mental capacity to create a valid EPOA was comparable to the test regarding capacity to make a valid will. The test for this comes from Banks v Goodfellow (1870) which outlined the following four requirements:

•    understanding the nature and effect of a will;
•    understanding the nature and effect of their assets;
•    understanding the people you would be expected to look after in your will; and
•    not be suffering from any disorder of the mind or delusions.

In the context of a valid EPOA, the prescribed witness is required to explain the nature and effect of making an EPOA, and the person would need to appear to understand the nature and effect of it. The prescribed witness must also be confident that the person making the EPOA is of sound mind at the time the documents are signed.

Accordingly, a valid EPOA should be done before you are ever at risk of being deemed not to have capacity to deal with your finances. It is recommended that an EPOA is made months or possibly years before you ever intend it to take effect.

It should also be noted that if the grantor of the power can pass the four requirements, the fact that they may be ‘very forgetful’ or be showing early signs of dementia is not necessarily a barrier to their capacity to make an EPOA. Courts have said in a number of cases that mental illness and legal capacity is a slow moving condition and it is possible to have capacity to do some things but not others.

Whoever you choose as your attorney must be aware of their responsibility to act in your best interests. Therefore, you need to ensure it is not only someone who you trust but also someone who is capable of dealing with your financial arrangements, no matter how complex.