What is “power of attorney”?

Power of attorney is an authority by which one person (the “donor”) gives authority to someone else (the “attorney”) to act in their name.

Why use it?

The idea of someone else being able to sign your cheques, cancel your insurances, even sell your home, would be a nightmare in most circumstances. But if your health deteriorates or you go overseas and are unable to run your own affairs, having someone else to help can be a godsend.

Many people think their partner will be able to step in automatically but that isn’t the case. Even if you’ve been married 50 years, your spouse will not be able to deal with any accounts, policies or possessions if they are in your own name. They’d need to go to court to be given that power. This could take months and cost thousands of dollars.

The best option is to arrange power of attorney in advance. It must be made while the donor’s mental capacity and judgment still allow them to understand what they are doing.

Types of power

There are two broad types of powers: “ordinary” and “enduring”.

  • Ordinary powers are best used for temporary purposes – for example, if you’re going overseas and want someone to be able to send you cash from your accounts or to pay bills here.
  • Most advisers recommend an enduring power of attorney for longer term protection. This works after you’ve become mentally incapable, while an ordinary power would lapse. Enduring powers of attorney can relate to property or your personal care and welfare. One attorney can act in relation to both property and care and welfare.

Revoking an enduring power of attorney

You can vary, suspend or revoke an enduring power of attorney while you’re still mentally capable. There are different procedures surrounding each of these actions. Legal advice should be sought, especially in regard to revocation.

The Protection of Personal and Property Rights Act 1988 sets out requirements for enduring powers of attorney.

Attorney for property

An attorney who deals with your property can write your cheques, roll over term deposits and even sell your home, depending on the power given or excluded in the document.

You can appoint more than one attorney to deal with your property, or use a trustee company such as Public Trust.

The arrangement must state whether the power of attorney will have immediate effect or if it will come into effect only if you become mentally incapable. You are “mentally incapable” in relation to property when you are not wholly competent to manage your own affairs.

Many lawyers recommend that the document have immediate effect because of the costs and difficulties of proving lack of capacity.

Reducing problems

There are measures you can take to protect yourself and reduce the risk of problems arising.

  • Appoint two attorneys. Appointments can be made “joint but not several” meaning neither attorney can act without the knowledge and approval of the other. The problem with requiring joint authority is that if one attorney is out of contact or incapacitated, the other can’t act alone. The enduring power of attorney will cease to have effect if one of the attorneys dies and the court revokes the appointment, or if one attorney becomes bankrupt or mentally ill. There will also be a problem if the joint attorneys can’t work together. Careful choice of joint attorneys is crucial.
  • Appoint a professional or a trustee company. An institution will be independent and will provide a check on an individual attorney. There will be ongoing professional costs for the work done.
  • Restrict an attorney’s powers. Instead of giving an attorney full powers, you can limit of what they can do. For example, you can choose to give your attorney power to access your accounts but not sell your house. But don’t go overboard with this. Having an attorney hamstrung with countless restrictions while you’re unable to look after yourself could be as bad as having no attorney at all.
  • You can also name parties with whom the attorney must consult before making decisions. The final decision still lies with the attorney, but the requirement of consultation can provide reassurance that the right decision will be made.

If significant sums of money are involved, two attorneys or an institution should be appointed.

Personal care and welfare

Only a private individual can act as an attorney for personal care and welfare. They have no control over money so must consult and work closely with the attorney for property. It’s important to select attorneys that are able to communicate and work well together.

An attorney for personal care and welfare can’t act in relation to a significant matter unless a relevant health practitioner has certified, or the court has determined, that the donor is mentally incapable. You will be considered mentally incapable where you lack the capacity to make or understand decisions in relation to your personal health and welfare.

The attorney also can’t act in relation to other matters unless they believe on reasonable grounds that the donor is mentally incapable.

You may want to limit their authority in matters such as moving in to rest-home care. But you need to ensure the attorney has enough flexibility to deal with situations that you might not envisage. If the authority is too prescriptive, their ability to deal with changing circumstances could be undermined.

You can also name parties with whom the attorney must consult before making decisions.

The personal care and welfare attorney can’t make decisions about marriage or divorce, electro-convulsive treatment or refuse to consent to life-saving medical action.

Appointing an attorney

You can choose practically anyone as your attorney, though to get enduring powers they must be 20 or over when taking on the role, a New Zealand resident, not bankrupt and not be suffering from any legal incapacity.

People often choose their partner as attorney, especially for personal care and welfare. If you are single, choose a trusted relative, friend, solicitor or accountant who is healthy and likely to outlive you, or (for property) a trustee corporation. Professionals will charge for their services, typically on an hourly basis for work done.

Consider whether the attorney has the skills, judgment and time to handle your affairs. Be aware that family members may find it difficult to act impartially, or may be influenced by other relatives.

Once you’ve appointed an attorney, avoid later misunderstandings by making sure that close friends and family members know.