Beware Cheap Succession Documents

Many of our clients will testify that we bang on endlessly about wills and enduring powers of attorney. Today we will look at why $50 for an Enduring Power of Attorney could prove to be extremely expensive.

Having had to assist clients through a period of bereavement or major illness is not one of our joys, but doing it in the absence of wills and enduring powers of attorney is extremely difficult to say the least. We are often asked by our clients why they would engage a lawyer to draft a Will or EPA when they can get one from the Post Office or off the Internet. I know from the rolled eyes of our many friends in legal practice that it isn’t a good idea to do these documents on the cheap. Today we will look at the finer details.

We are constantly being reminded that the ‘baby boomer’ generation are living longer. Scarily we are also told that the incidence of dementia and other diseases is rising as we live longer.

Many succession law professionals now agree that an EPA is a much more important document for a client than their will in some ways. This is because the EPA impacts upon the client whilst they are still alive, but possibly have lost the capacity to look after their own affairs.

Irrespective of what assets a client may have, there are a number of basic requirements that every EPA should have, but which do not appear in the standard form i.e. they need to be specially drafted in. They include:

  • Criteria by which to determine when the principal has lost capacity, something which does not involve competing claims of family members that have to be settled by a court dispute;

  • If a client’s spouse is to be their attorney – provisions specifically dealing with acts they can do as attorney which will not be subject to the prohibitions on “conflict transactions” in the Powers of Attorney Act – this can impact upon operating joint bank accounts, selling joint investments and many other transactions that the couple could expect to occur and do not want to be inhibited by the Act;
  • Should the attorney be able to get access to the principal’s will? In recent times this has become a much-debated issue, particularly because if the attorney sells an asset that is specifically gifted in a will the disappointed beneficiary can apply to the court for compensation;

  • A specific statement as to whether or not the attorney can exercise the principal’s power to appoint and remove trustees of trusts (and checking the trust deeds accord with that determination);

  • If there are to be multiple attorneys, i.e. all 3 children of a client are appointed, should they have to unanimously agree? Or is it to be by majority? Can they act independently for matters below a low limit, i.e. $5,000; and
  • Where the attorney is to be given the power to deal with the principal’s superannuation balance, how limited or how broad should such powers be?

    Most advisers are now aware that when a client has an SMSF it is important to ensure they have appointed an attorney for their financial affairs who is then able to step in as a trustee (or director of a corporate trustee) of the SMSF if the client losses capacity. There are, however, a number of advanced tax and estate planning opportunities which should also be considered, including:

  • Where the client does not have a spouse or other SIS Act dependant and they receive a terminal diagnosis or lose capacity, should their attorney be specifically instructed (and empowered) to withdraw money from superannuation accounts to reduce the impact of potential super death benefit taxes?

  • Should the attorney be instructed and empowered to transfer or gift assets or cash in excess of the principal’s needs to move those assets outside of estate litigation risk?

    Not all of the issues canvassed above will be relevant for every client and it is possible that not every potential issue has been examined in this article. However, our recent experience is that the vast majority of clients will want to deal with at least some of these issues once the potential impacts are fully explained to them. Importantly, if a client’s EPA does not specifically deal with many of these issues any opportunity to address them is lost if they lose capacity. At that time there is no longer an ability to reduce potential tax, to reduce estate assets to keep them away from lawyer’s fees or to ensure what the client really wants can be achieved.

    The importance of living succession issues including how a client lives in their old age and how they are cared for if they lose capacity is slowly being recognised in the community. Properly drafted, an EPA can be a very powerful tool for clients to ensure their wishes are met.

We are accountants and not lawyers, the above should be considered background information and not advice.

Hear me on this folks, if you haven’t got wills and EPA’s in place – begin the process today. Contact Magnus or your preferred lawyer and get the journey started.

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