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Meet Jane and Peter. The wife and husband both jointly own their home, have joint bank accounts and investments. Peter eventually had to move into residential aged care. Jane would like to sell the family home and buy a unit in the independent living complex near Peter’s residential aged care home.
While the husband and wife had Wills, they did not have an Enduring Power of Attorney (POA).
Although Jane received financial management orders from the Guardianship Tribunal of New South Wales, to act on her husband’s behalf, any money Jane uses must be spent in Peter’s best interest. Under this fiduciary duty, buying the unit is not in Peter’s best interest. Moreover, she is required to report annually to the Tribunal and face ongoing scrutiny.
Therefore, the proceeds from his share of the sale of the family home had to be re-invested in his name. This meant that Jane did not have enough money to buy the independent living unit. Furthermore, Peter now has investments that reduce their age pension and increase his fees.
While Jane and Peter are not their real names, this is a real case example of a client provided by an adviser to Aged Care Steps Director Louise Biti.
Putting in place a robust Enduring POA, therefore, is an important step in preparing for greater certainty in retirement. According to Biti, there are a number of important considerations clients and advisers need to think about in setting out an effective contract.
“Just having a POA is not good enough. You need to think about the purpose behind the document. Evaluate who you want to give that power to. Understand what powers you want to give them or not give them,” Biti said.
According to Biti, putting in clauses with specific instructions would have helped address the issues confronted by Jane and Peter.
“A clause can include express permission to authorise the attorney to use the client’s money for purposes such as covering their spouse’s reasonable living costs and/or accommodation needs. After all a couple shared a life together. It’s only reasonable that the money continues to pay for the other half’s expenses because they would have done that living together,” she said.
When choosing who to nominate as POA it is important to choose a person who you trust. If you nominate your spouse, in particular, Biti notes it’s also important to think about “cascading nominations”. It may not be enough to just nominate your spouse. “If a spouse is unable to carry out the client’s wishes, then the powers can revert to the son or daughter or the next person they trust.”
Clients could also consider clauses that address conflicts of interest such as gifting to allow, if desired, children being able to gift part of the money to themselves within reasonable limits.
She adds that it may also be beneficial for the POA document to include a requirement for regular statements or reporting to be provided to other family members as an accountability measure.
Advisers can play a key role in helping increase their client’s awareness about putting together a robust POA. Biti acknowledges that while lawyers are well placed to write the POA, many simply take instructions.
“A financial adviser or a good lawyer should guide you through some of the issues such as conflicts of interest. Advisers can work effectively with their clients to workshop scenarios and help them visualise which family members are well-placed to carry out their wishes and identify and potential conflicts.”