When Power of Attorney Goes Wrong

Before we dive right in to discussing what happens when a Power of Attorney goes wrong, let's start with the basics...

What is a Power of Attorney (POA?)

If you lack the capacity to manage your own legal and financial affairs or to make financial decisions, you can appoint a Power of Attorney (POA) to make decisions that are in your best interest. 

Depending on your individual circumstances, there are different kinds of POAs to look into, such as a general power of attorney, and an enduring power of attorney. While a general POA can temporarily help with business affairs, finances and real estate (for example, if you are overseas and need someone to act on your behalf) an enduring power of attorney is often used by those who would like someone to make decisions on their behalf in the event that they lose capacity (ie for advanced and medical care). 

What is the role of a power of attorney?

With a power of attorney title (literally) comes power and a whole lotta responsibility, so the role isn’t suited for everyone. Unfortunately, as is usually the case with the elderly, a power of attorney can misuse funds and abuse this power. This is a type of elder abuse that sadly occurs more often than we think. 

In a general sense, POAs are bound by important duties which include:

• Making decisions and acting in the best interest of the principal
• Keeping the principal’s money separate from their own
• Ensuring that records and receipts are kept when making transactions
• Not sending unauthorised gifts or donations to others
• Not benefitting from their position as a POA
• Avoiding transactions that could create a conflict of interest between themselves and the principal.

Can I cancel or change my power of attorney?

Yes. You can cancel or change your power of attorney, however, the process differs between jurisdictions in Australia, so it’s a good idea to seek appropriate legal advice to make sure you’re doing the right thing where you live. Moreover, in the case of changing your enduring POA, you can do this at any time provided you have the mental acuity to do so (i.e., as long as you understand what you are doing at the time). 

How do I know if my power of attorney is doing the wrong thing?

It’s not always obvious when a power of attorney is abusing their power. When it does occur, however, abuse of power may look like this:

• Failure to pay for necessities 
• Failure to consult with those who are close to the principal
• Using the principal’s funds for personal transactions, or to help someone else
• Sell or transfer the principal’s assets for personal financial gain, or to benefit someone else

… and more.

What can I do if my power of attorney is doing the wrong thing?

If you live in Victoria, here are the steps you can take:

1. Immediately revoke the power of attorney.
2. To stop any further transfers of real estate, file official paperwork with the Registrar of Titles.
3. Withdraw any bank signatory arrangements or other means by which the abuse is occurring.
4. Apply to VCAT (or the relevant body in your state or territory) for any assets lost.

You can complete these four steps above if you still have the mental capacity to do so. If you do not have the capacity, your closest relatives can make these decisions for you, or they can apply to the relevant body to seek a cancellation of the power of attorney you previously had in place. 

How can I reduce the risk of a POA doing the wrong thing?

While there is no foolproof guarantee that a POA will be used the way that you want, there are steps you can take to minimise risks. For example, you can:

• Appoint multiple POAs
• Require that your POA provide all information to another trusted person before any decisions are made
• If you’re able to, review your POA every year.

Other things to consider when selecting a power of attorney

When choosing a POA, it’s important that you don’t make any hasty decisions. Take the time to consider all of your options, and pick a person or people you trust. Keep in mind that:

• You don’t have to appoint your adult children or a spouse. You can choose anyone you trust.
• Consider who will make the best decisions on your behalf during what may be a time of crisis.
• Be mindful of choosing an individual who experiences their own difficulties, for example, someone who is dealing with financial problems or addiction.
• Do not appoint a person just to keep the peace within the family dynamic.

When is the best time to make an enduring power?

If you decide that you’d like to make an enduring power of attorney, you must do so while you have the ability to make decisions. This is because it’s important you completely understand what you are signing. In some Australian states and territories, the enduring power witnesses must be satisfied that you have the decision-making capacity to do so.

Wrap up

Organising your power of attorney is a big step that requires a whole lotta thought, so remember to take your time with the big life decision. Sadly, it’s not uncommon for powers of attorney to abuse their power, but luckily, there are ways to minimise risk and to revoke or change a power of attorney if needed.

If you’re not sure if you are able to make your enduring power of attorney, if you even should, or you’re having difficulties choosing a person to take on the responsibility, it might be a good idea to speak with your healthcare professional, community worker, or social or allied health worker so you can make the best decision for yourself and your family.

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Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, accounting or tax advice.