Estate planning is not just about executing wills and distributing assets upon an individual’s death, it should also include the possibility of mental or legal incapacity during a client’s lifetime.

If your client loses the capacity to make decisions without an enduring power of attorney or guardianship appointment in place, control of decisions over a client’s property, medical treatment and lifestyle may be handled by a person who is unsatisfactory. Alternatively, such control may have to be determined by a state or territory tribunal.

A power of attorney is an important, practical and useful legal solution that not only provides peace of mind, it can also avoid costly and complex legal problems. It is a legal document that allows a person, company or body corporate to appoint an agent to act on their behalf. The person delegating the power is known as the principal (or sometimes donor or grantor) and the person receiving the power is known as the attorney (or donee, grantee or even agent). The relationship between the principal and attorney is that of principal and agent.

As with wills and intestacy law, legislation governing powers of attorney is state and territory based, and each jurisdiction has its own act. This can present a problem where a power of attorney granted in one state may not give the attorney the power to act in another jurisdiction.

Once an unlimited power of attorney is granted, the attorney, and it can be more than one person, has the exclusive power to act in the capacity of the principal. Therefore, the attorney can enter into contracts, buy and sell property and make other decisions regarding the principal’s financial affairs and property. Powers of attorney can be quite broad or very restrictive in what powers are given to the attorney.

A power of attorney does have some exclusions. For instance:

• a principal cannot instruct a attorney to do anything illegal,

• an attorney does not have the power, on behalf of the principal, to prepare a will, to vote in an election or referendum, or consent to marriage, and once nominated, the attorneys cannot appoint someone else to assume their powers or responsibilities, unless this has been specified in the power of attorney.

There are two main types of power of attorney available in all states and territories:

• general powers of attorney, and

• enduring powers of attorney.

A general power of attorney can be set up to give the attorney the authority:

• to do just one thing,

• to do a restricted range of things, or

• to allow the attorney to make any financial or legal decisions on the principal’s behalf.

A general power of attorney with limited powers is usually granted to cover a specific event for a fixed period of time. For instance, your client Sam, who intends to travel overseas, may want to make a general power of attorney, and the person (or organisation) appointed as attorney can make financial decisions on his behalf while he is away. This could include selling shares or property or signing a legal agreement. The general power of attorney would lapse after Sam returned.

General powers of attorney remain valid only while the principal has mental capacity. If the principal becomes mentally incapacitated and therefore legally incompetent, the power of attorney ceases to be active.

An enduring power of attorney is more important for estate planning purposes. These appointments can help clients plan for the future when they have lost the power to make rational decisions – in other words – to understand consequences, take responsibility and weigh up risks and benefits.

Unfortunately, nobody knows when illness or injury will strike and whether this event will impact on mental capacity. With the prevalence of motor vehicle and other accidents along with Australia’s increasingly ageing population combined with the impact of Alzheimer’s, dementia and other diseases, it is clear that enduring powers of attorney will become even more important in the future.

Enduring powers of attorney may apply to financial, medical and lifestyle decisions. It all depends on the jurisdiction. All Australian states and territories have enduring powers of attorney for financial matters. However, for medical and lifestyle matters, enduring powers of attorney apply to all states except Western Australia and the Northern Territory. For these states they have guardianship tribunals allowing the appointment of a guardian for a person with a decision-making disability. The guardian makes personal and lifestyle decisions on behalf of a person who has lost the ability to make reasonable judgements or decisions about daily living because of intellectual disability, dementia, mental illness, acquired brain injury or other disability. However, unlike other states and territories, this appointment is made after the person has lost mental capacity. If the guardian in these jurisdictions cannot continue his or her duties, another guardian or the Public Guardian (Northern Territory) or Public Advocate (Western Australia) can be appointed.