We all hope to live long and healthy lives, with the mental capacity to make our own financial and lifestyle decisions. However, not everyone is blessed with lifelong capacity. The purpose of this article is to explain the consequences which can arise if you lose your capacity.

In relation to financial matters, many people wrongly believe that if they lose their capacity to make financial decisions, then their husband, wife or partner can step in to make financial decisions and effectively manage the situation. That is not correct. The fact that you are in a relationship with a person, or own property jointly with a person, does not give them the automatic power to make financial decisions for you. If your spouse (or other family member) wants to make financial decisions for you, they need to apply for a Financial Management Order which involves an application to the Guardianship Division of the NSW Civil & Administrative Tribunal (NCAT). In many
cases the financial management order then comes under the supervision of the NSW Trustee & Guardian (formerly known as the Public Trustee). Whilst the Trustee & Guardian provides a good service, many clients express their concerns about the involvement of the so-called ‘big brother’.

An application to NCAT for a Financial Management Order can be daunting for a family where a loved one has suddenly lost their capacity, such as due to a sudden stroke or other illness.

At HLB Mann Judd, we encourage our clients to put in place an Enduring Power of Attorney (EPOA) whereby the client appoints the substitute decision maker (called ‘an attorney’. Note that the EPOA attorney is different to an American Lawyer which is also called an Attorney). If a client has an EPOA in place, then in the event of incapacity there is no need to make any application to NCAT. The person or persons appointed by the client in the EPOA
automatically has the power to make financial decisions and carry out financial transactions for the incapacitated person.

We find that many clients who are married or in relationships will appoint each other. However, it is also important to appoint one or more substitutes. An EPOA simply appointing each other is useless if both clients are in an accident together. The substitute(s) can be one or more trusted people such as adult children or other family members or friends.

An EPOA is essential for clients who have their own Self-Managed Super Fund (SMSF). The SMSF regulations require that members of the SMSF are either trustees of the fund, or directors of a company acting as the trustee. If a fund member is incapacitated, the member cannot be a trustee or a Director of a company. If that occurs, the SMSF becomes ‘non-complying’ which means it loses the tax concessions given by the super regulations.

The Tax Office will allow the SMSF to retain its tax concessions if the incapacitated member has in place an EPOA and the attorney then takes the place of the incapacitated member. A huge advantage of having in place an EPOA is that you decide who makes financial decisions in the event of your incapacity, instead of the decision being made by people unknown to you at NCAT or the NSW Trustee & Guardian.

It is important to understand that in NSW your financial attorney appointed via an EPOA cannot make health, medical or lifestyle decisions for you. That is done by a separate appointment called an ‘Appointment of Enduring Guardian’. The Enduring Guardian can be the same person or persons appointed as financial attorney or can be a different person or persons. We encourage clients to consider appointing both a financial attorney and an enduring guardian.

This article was first published in Personal Wealth Adviser – Issue 2.