Written by Robert O’Harae

Powers of Attorney: The Golden Rule

A Power of Attorney is a legal document that allows the person making the Power of Attorney (referred to as the principal) to nominate one or more persons (referred to as attorney or attorneys) to act on the principal’s behalf.

An Enduring Power of Attorney grants an attorney authority to manage the principal’s legal and financial affairs including buying and selling real estate, shares and other assets as well as operating the principal’s bank accounts and spending money on their behalf, even after the principal has lost the capacity to make financial decisions for themselves. Typically, a letter from the principal’s treating general practitioner or geriatrician should be obtained to confirm that the principal has lost capacity to manage their financial affairs and this can be a condition of the instrument being operable.

It is not surprising that with a position of such importance and trust, an attorney must only act only in the best interests of the principal. This means an attorney must:

  1. Avoid doing anything as an attorney which would mean that their own interests conflict with the principal’s interests;
  2. Obey the principal’s instructions while they are mentally capable and any directions set out in the Power of Attorney document;
  3. Act according to any limits or conditions placed on their authority within the Power of Attorney document;
  4. Not give gifts to themselves or to others, enabling them to benefit from the principal’s finances unless it is specifically authorised to do so. Even if authorised, any gift must be seen as reasonable in the circumstances;
  5. Keep their finances and money separate from the principal’s; and
  6. Keep accurate and proper records of their dealings with the principal’s finances or property.

The importance of these obligations were brought to light in the recent case of Case 662814 concerning Westpac Banking Corporation which came before the Australian Financial and Complaints Authority (AFCA).

In this instance an elderly person in their nineties opened a Westpac bank account and their daughter was added as a signatory to that account. In July 2019 (about 4 years after the account was opened) the elderly person and the daughter requested a withdrawal of $100,000 in cash. A few days after that request was made, the elderly person was admitted to hospital. On that occasion Westpac refused to provide the money to the daughter after her parent’s admission to hospital.

Shortly after Westpac declined the transaction, a Power of Attorney was made by the elderly person appointing their daughter as their attorney.

Using the Power of Attorney, the daughter sought to withdraw $800,000 from her parent’s Westpac account to purchase gold bullion. The daughter informed the bank that the gold was to be purchased in her sole name and not in the name of her parent, effectively transferring the value of the funds to the daughter.

Westpac again blocked the transaction and made direct enquiries with the parent, who when questioned by the bank seemed unsure, uncertain and lacked understanding of the requested transaction to purchase gold bullion.

Following Westpac’s blockage of the transfer, the daughter brought a complaint to AFCA who upheld the bank’s actions.

AFCA found that Westpac had a duty to exercise reasonable care and skill in carrying out transactions for its customer, particularly if the customer is vulnerable.

AFCA considered that the ninety-year-old bank account holder was vulnerable to potential elder and financial abuse by their daughter. Within its decision, AFCA advised noted that “financial firm employees may be in the best, and sometimes the only, position to recognise financial elder abuse when it occurs. Financial firm employees need to be encourage to trust their instincts”.

This case illustrates the importance for those considering making Power of Attorney of choosing the right attorney to appoint due to the importance of that appointment and the trust required within the role. Further, it highlights the diligence the employees of banks and other institutions should exercise when receiving instructions from an attorney under a Power of Attorney.

UWE advises on the preparation and implementation of Power of Attorneys as well as recovery against inappropriate transactions. Please contact us on (02) 9290 1177.