Julie Hartley
Thinking of making an enduring power of attorney? Be aware that there has been some recent changes to the law for enduring powers of attorney made in Victoria since 1 September 2015.
Nothing needs to be done in relation to existing enduring powers of attorney as these are grandfathered under the new legislation and remain valid.
What do the changes mean for SMSFs?
The new legislation specifically prohibits attorneys from entering into conflicted transactions unless they have obtained prior consent from the principal (i.e. the member of the fund).
Conflicted transactions are those which do or have the potential to bring the attorney’s duty to the principal into conflict with the interest of the attorney (or other associated persons of the attorney such as relatives or business partners).
Examples of situations which are not uncommon in the SMSF context but are likely to involve such a conflict are:
- the attorney making a binding death benefit nomination for the principal (as member of a super fund) in favour of the attorney;
- the attorney amending the nomination to remove beneficiaries (such as children of the principal from a previous marriage) and nominate the attorney in their place; or
- the attorney cashing out the principal’s benefit before their death (e.g. may be tax free now but taxable if distributed after death).
In anticipation of these scenarios (and others), a principal/member will have to carefully consider from the outset how much flexibility and power in relation to their superannuation fund they wish to give their attorney.
Once the decision has been made, the enduring power of attorney documentation must be drafted to expressly outline which potentially conflicted transactions the attorney is authorised to enter into on behalf of the principal.
If the attorney is unable to demonstrate they had the prior consent of the principal, their actions could potentially be found in breach of the new legislation and held to be invalid.
More information on the legislative changes
Before 1 September 2015, Victoria had four types of power of attorneys:
- General power of attorney
- Enduring power of attorney (financial & legal decisions)
- Enduring power of attorney (medical decisions)
- Enduring power of guardianship (personal & lifestyle decisions)
However this changed when the Powers of Attorney Act 2014 (VIC) (“the new Act”) came into operation on 1 September 2015. All enduring power of attorney (“EPOA”) appointments made after this date must now meet the requirements of the new Act in order to be valid.
Overview of the changes:
- The new Act consolidated the enduring power of attorney and enduring power of guardianship into a single enduring power of attorney, hereby allowing principals to appoint someone to deal with their financial, legal and personal matters in one document.
- It created a new assisting role – the supportive attorney.
- It created a new assisting role – the supportive attorney.
- It improved the protections available to principals against attorneys abusing their powers by:
- providing further guidance on what is and how to assess someone’s decision making capacity;
- strengthening the execution requirements to make and revoke appointments (execution now requires two witnesses, both viewing the principal’s execution and each other’s execution, and one of them must be authorised to witness the signing of affidavits or be a medical practitioner);
- clearly outlining the duties of the enduring attorneys;
- expressly prohibiting conflict of interest transactions unless authorised;
- regulating the giving of gifts; and
- introducing new civil and criminal penalties (including jail time) if the power is misused.
The medical enduring power of attorney was unaffected and remains regulated by the Medical Treatment Act 1988 (VIC).
Supportive attorney:
Victoria is the pioneer of the role of supportive attorney in Australia.
The role was introduced to promote autonomy and dignity for principals by allowing them to continue to make and implement their own decisions, but with the assistance and support of another person (their supportive attorney) whose authority is recognised by third parties.
The principal can grant three powers to their supportive attorney:
- information power – to obtain the principal’s personal information from a third party;
- communication power – to be able to communicate information about the principal to third parties who can rely on this communication as if it came directly from the principal; and
- power to give effect to decisions – the supportive attorney can do whatever is reasonably necessary to give effect to the decision (with the exception of decisions about significant financial transactions).
The appointment of the supportive attorney will cease once the principal loses capacity. Depending on how the enduring power of attorney documentation is prepared, the loss of capacity would generally be the event triggering the appointment of the enduring attorney.
By Julie Hartley