The powers of an attorney: being under the thumb**

An issue that often arises is the exact extent of the powers an attorney may exercise on behalf of a donor.

One of the leading cases in this area is Taheri v Vitek [2014] NSWCA 209.

In summary the key aspects of the case were as follows:

1. The wife appointed her husband under a power of attorney and granted the husband the standard ability ‘to do on my behalf anything I may lawfully authorise an attorney to do’.
2. The attorney document (as is often the case) also empowered the husband as attorney to act despite any benefit that may pass to him.
3. The husband later used his appointment as attorney to sign on behalf of his wife and guarantee a purchase of land by a company the husband was sole director of.
4. The wife subsequently attempted to avoid her obligations under the guarantee on the basis that the document and wider transaction did not benefit her.

The court held that the wife was bound to comply with the guarantee, regardless of whether the transaction was for her benefit. The decision was primarily based on the term in the appointment document that allowed the husband to act even if the transaction did not benefit his wife.

It was however also confirmed that even if the appointment of attorney document does not specifically confirm an attorney can act against the interests of the donor, the attorney’s actions may still be binding. The reason for this general approach of the courts is to ensure certainty for third parties who reasonably rely on the apparent authority of an attorney.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Rolling Stones song ‘Under my thumb’.

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(out of) ‘Control’** of family trusts

Under the capital gains tax small business concessions, what amounts to ‘control’ of a discretionary trust is an important issue. 

In this regard, a key aspect relates to the concept of whether the trustee of a trust ‘acts, or could reasonably be expected to act, in accordance with the directions or wishes of another person or entity’.

Arguably, the leading analysis of these rules is in the case of Gutteridge v Commissioner of Taxation [2013] AATA 947.

Briefly, the case involved sale of assets by the corporate trustee of a traditional family trust (Trust).

The sole director and shareholder of the corporate trustee was Ms McKenzie, who also controlled another company (Company).

The principal of the Trust was as third party professional adviser to the family (Mr Coffey), who provided evidence that he would always follow any directions from Ms McKenzie’s father (Mr Gutteridge) including, if necessary, removing a trustee from that role. In turn Mr Coffey confirmed he would disregard any instructions from Ms McKenzie that were contrary to those provided by Mr Gutteridge.

The Tax Office denied access to the small business concessions on the basis that Ms McKenzie controlled both the Trust and Company.

The court held however that the Trust ultimately acted in accordance with the directions of Mr Gutteridge and therefore Ms McKenzie did not control it.

The Trust was therefore able to access the small business concessions.

The case ultimately reinforces that the rules are highly dependent upon the factual matrix of each case.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Chemical Brothers song 'Out of control’.

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Powers of attorney and donor** intention

While strictly a case that was focused on a tax issue (and the ability to access trading losses), the decision in the AAT case Executor for the late Joan E Osborne and Commissioner of Taxation [2014] AATA 128 also provides useful guidance in relation to a related estate planning issue.

In summary:

1. The donor under a power of attorney appointed her niece and nephew to manage a share portfolio.
2. All evidence suggested that the donor treated the portfolio as a capital investment.
3. Over time, the attorneys grew the share portfolio significantly, partly by leveraging the shares through a margin loan.
4. At all times during the profit years, the portfolio was treated for tax purposes as a capital asset (i.e. reflecting the donor’s original intention).
5. When however significant losses were incurred, the attorneys sought to argue that they had been conducting share trading activities and therefore the losses should not be quarantined to only being able to be offset against capital gains.

In denying access to the revenue losses, the AAT confirmed that it was always extremely relevant to consider the actual intention of the donor regardless of whatever intentions the attorneys may personally hold.

As usual, please contact me if you would like access to any of the content mentioned in this post.

** For the trainspotters, the title of today's post is riffed from the Death Cab for Cutie song ‘Styrofoam plates’. View here:

The continuing saga of how many powers of attorney it takes to create authority

In one of the LinkedIn discussion groups I am a member of, the issue was raised recently about what documents are required when someone has assets or spends time in more than one state around the country.

The issue is particularly prevalent in communities near state borders. However it can potentially arise in any situation. Indeed, the issue can also arise across international borders.

Our view, which seems to align with the general consensus of those regularly advising in this area, is captured succinctly in my earlier post – see How many powers of attorney does it take to create authority?

Interestingly, the post from 2011 flags the ‘ongoing push' to have uniform succession laws across Australia. In the five years that have passed since that post, most would agree no progress at all has been made in this area.

In adopting the approach recommended in the earlier post of preparing a document in each jurisdiction that a person has significant assets or spends significant time, it is generally seen as best practice to include ‘duplication acknowledgement' wording.

Some example base wording in this regard is as follows:

1. For the avoidance of doubt I confirm that I have executed an Instrument Appointing an [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] pursuant to the [#insert relevant state act] ('the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian]’) for any matter that requires signing by an [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] duly appointed by the laws of [#Insert state eg New South Wales].


2. By this Power of Attorney for personal and health matters ('the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters]) I appoint my Attorneys in respect of any personal or health matter not strictly required to be signed by an [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] appointed by the laws of [#Insert state eg New South Wales].


3. To the extent there is any inconsistency or overlap between the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters] and the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian], the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction] is to prevail and the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters] is to be modified (and its operation suspended to that extent only) for such time as the [#insert state acronym eg NSW] [#Name of medical EPA in relevant jurisdiction eg Enduring Guardian] remains in existence.


4. In all other respects the [#insert state acronym eg QLD] [#Name of medical EPA in relevant jurisdiction eg Power of Attorney for personal and health matters] shall apply and remain in force.

Image courtesy of Shutterstock

Incapacity and SMSF control

Where a member of an SMSF dies, leaving (for example) their spouse as the sole member and a reversionary pensioner, issues can arise where that member themselves loses capacity.

In this scenario, much depends on the exact circumstances including the timing of the various death/incapacity events and whether the SMSF has an individual or corporate trustee.  Broadly, where corporate trustee is in place:

1. Upon the death of the first member (leaving a reversionary pension for the other member), the remaining member would control the SMSF as sole director of the corporate trustee.  The executor for the deceased member would not have any ongoing involvement in the SMSF or corporate trustee.


2. Upon the subsequent incapacity of the second member, their financial power of attorney would, subject to the exact provisions of both the SMSF deed and the constitution for the corporate trustee, have the ability to remove the incapacitated director and appoint themselves in their place. 


3. While there must be an enduring power of attorney in place before the event of incapacity, there is no specific wording required in the document itself, rather the SMSF deed and the constitution will be critical.


4. The attorney for the incapacitated member would then perform the administrative functions in their capacity as director of the corporate trustee.

Image credit: Sippanont Samchai cc

EPAs and gift and loan back arrangements

Two possible solutions.

Following the recent post about conflict of interest provisions under an enduring power of attorney (EPA) a question came up as to whether a gift and loan back arrangement would have provided another solution. 

A summary of the general way in which a gift and loan back arrangement would work is set out in recent posts (http://mwbmcr.blogspot.com/2014/04/how-gift-and-loan-back-arrangements-work.html).

The concept raised in the scenario touched on in the recent post was as follows:

1. The attorney could arrange for a cash gift equal to the value of the husband’s interest in the home to a discretionary trust that would ultimately pass to the control of the children of the marriage. 
2. That trust would then lend the amount back to the husband (via his wife as the attorney). 
3. The husband’s estate (following his death) would then be required to repay the debt to the trust effectively ensuring that only nominal assets would pass under the husband’s will and the main value of the estate would in turn be held via a more robust structure, being the previously established trust. 

Obviously the ability to implement this approach would depend entirely on whether the appropriate conflict of interest provision existed under the EPA and whether the attorney could satisfy themselves that they would not be breaching their fiduciary duties to the principal by undertaking the arrangement.

There would also be a range of commercial issues that would need to be considered, not least of which the fact that the trust involved would not be a testamentary trust and therefore would not enjoy the various advantages that testamentary trusts have as compared to standard discretionary trusts.

Until next week.

Image credit: Jens Wessling cc

EPAs and conflicts of interest

With the aging population, conflicts of interest arising particularly in relation to the use of an enduring power of attorney (EPA) are becoming far more prevalent.

Previous posts have looked at cases like Stanford. Recently we had a client situation that underlined how critical it is to include a conflict of interest provision in an EPA. This style of provision is not standard in any government form and indeed many lawyers do not choose to include such a provision.

The situation the client faced was as follows:

1. The main asset in the estate was a family home which was owned as joint tenants. 
2. The husband lacked capacity due to advanced dementia, although was otherwise in good health. 
3. Our client (the wife) wanted to include testamentary discretionary trusts under her will to provide for the children of the relationship. 
4. The husband’s will was a very basic document and did not allow for testamentary discretionary trusts. 
5. To ensure that half the value of the house would pass into an appropriate structure if the wife predeceased the husband she was wanting to rely on her appointment as the husband’s EPA to sever the joint tenancy (for a summary of the distinction between owning assets as joint tenants and tenants in common see http://mwbmcr.blogspot.com/2010/02/what-exactly-does-jointly-mean.html). 
6. Due to an appropriately crafted conflict of interest clause in the EPA, the wife was able to quickly and easily implement the severance and avoid some of the more complex solutions that might also have been available such as the unilateral severance of the tenancy or applying for a court ordered will (the court ordered will process is featured in previous posts: http://mwbmcr.blogspot.com/2013/08/court-drafted-wills.html and http://mwbmcr.blogspot.com.ar/2013/09/using-court-drafted-wills-to-achieve.html). 

Until next week.

Image credit: Schnaars cc

Signing estate planning documents

Image Credit: Robin Hutton cc

We regularly review signed estate planning documentation that has been returned to us for secure storage on a daily basis.

As part of a recent quality control audit, we tracked the most regularly occurring reasons for documents being rejected for a failure to comply with the strict legal requirements in this area.

Set out below is a summary of the most common issues we identified, and it is a timely reminder for any adviser facilitating the estate planning process:

1. attorneys signing the attorney documents before the principal has signed – an attorney can not accept their appointment before the principal has appointed them; 
2. leaving documents undated - unlike many other formal documents (for example, tax returns) where clients are specifically told not to date the document, all estate planning documentation must be dated on the day that it is signed; 
3. failing to sign (and date) in each and every place required; 
4. having witnesses who are relatives, beneficiaries or appointed in roles of authority (such as executor or attorney), all of whom are largely prohibited from being a witness; 
5. having unqualified witnesses witness attorney documents when specific qualifications are required; and 
6. attaching anything to an original document, including by way of paper clip, bulldog clip or post-it note. 

If any of the above issues arise, it virtually guarantees that the relevant document must be reproduced and resigned in order to avoid substantial and unnecessary difficulties when the document ultimately needs to be relied upon.

Until next week.

Delay in an attorney accepting their position

Photo Credit: Robin Hutton cc

Today’s post follows on from the recent post concerning signing of an enduring power of attorney (EPA) and considers the impact of an attorney not accepting their position immediately after the principal executes the document.

The leading case on this point is Whitney v National Australia Bank Ltd [2007] QSC 397. As usual, a full copy of the case is available here - http://www.austlii.edu.au/au/cases/qld/QSC/2007/397.html.

In this case, Mrs Murphy had executed an EPA in 2003 appointing Mr Whitney and Mr Walker as her attorneys. At some time between 2003 and 2007, Mrs Murphy developed dementia, although there was no question about her capacity at the time of her executing the EPA.

In 2007, the attorneys accepted their position by signing the EPA and shortly thereafter attempted to use it with a bank. The bank refused to accept the EPA, stating that it considered that Mrs Murphy did not have capacity at the time the attorneys signed the EPA.

Mr Whitney applied to the Queensland Supreme Court for a declaration that the attorneys could exercise their powers under the EPA.

The Court confirmed that an attorney may accept their appointment at any time after a principal has validly executed an EPA, even if the principal has since lost capacity, primarily because an EPA is not revoked by a principal’s later loss of capacity.

In this case, the acceptance by the attorneys was therefore valid and the costs for the application were imposed on the bank, whose unequivocal refusal to accept the EPA was found to be unjustified.

Until next week.

When can an attorney accept their position?

Photo Credit: Robin Hutton cc

Today’s post considers when an attorney may accept their position under an enduring power of attorney (EPA).

This issue was recently considered in DC [2013] QCAT 108. As usual, a full copy of the case is available here - http://www.austlii.edu.au/au/cases/qld/QCAT/2013/108.html.

In this case, DC had executed an EPA appointing his wife and his son as his attorneys. DC subsequently lost capacity, and his attorneys attempted to use the EPA. However it soon came to light that there were numerous errors in the document, and to remedy this, the attorneys applied to the Queensland Civil Administration Tribunal (QCAT) for a ruling that the EPA was valid.

While there were other issues with the EPA, a key concern was that the son had signed his acceptance as attorney before his father signed the document.

QCAT confirmed that an attorney cannot accept their appointment until an EPA has been executed by the principal who is granting the power in the first place. Here, QCAT found that given DC had not signed the EPA before his son, no grant of power had been made and therefore the son’s purported acceptance was invalid.

QCAT also confirmed however that the invalid acceptance could be remedied by the son simply re-executing the EPA to accept his appointment – and this was possible even though DC had already lost capacity.

Until next week.

Divorce and 'jointly' owned assets

Image credit: Stefano Corso

In a recent post, the impact of separation following a relationship breakdown on estate planning arrangements was considered. 

One particular aspect that arose recently in this regard involved an adviser who identified that many assets owned by a couple who had recently separated were owned as joint tenants. 

While the adviser was quick to ensure updated will and power of attorney documentation was put in place, at the same time, for the benefit of both spouses, steps were also taken to sever the joint tenancy ownership and convert it to tenants in common. 

An earlier post summarises the distinction in this regard, and it is critical that joint ownership structures be considered as part of an estate planning review following a relationship breakdown. 

The other aspect in this regard is the often forgotten requirement that before a married couple can in fact divorce, there must be evidence of an irretrievable breakdown in the relationship that has lasted more than 12 months. 

As touched on in last week's post, while divorce will often partially revoke a will to the extent that it benefits a former spouse, given the 12-month 'waiting period', the conservative approach is to always update estate planning documentation as soon as it is clear that there is no real prospect of a reconciliation following the initial separation. 

Until next week.

Family courts' power to adjust inheritance rights

With thanks to co View Legal director Tara Lucke, this week’s post looks at the widely publicised High Court judgment of Stanford v Stanford (2012) HCA 52 from the end of 2012 and the Family Courts’ powers to potentially displace the distribution of assets under an estate plan. A link to the full copy of the decision is as follows: http://www.austlii.edu.au/au/cases/cth/HCA/2012/52.html

As many will be aware the brief facts were that Mr and Mrs Stanford had no children together, although both had children from previous relationships. The Stanford’s had both crafted their estate plans to provide for their respective children, without making provision for each other, other than a life tenancy in the family home. The house was owned solely in the name of Mr Stanford (he had bought it before the marriage), although it had been lived in by the couple for over 40 years.

Critically, Mrs Stanford appointed her children, not Mr Stanford, under her guardian and attorney documents.

Due to ill health and mental incapacity, Mrs Stanford was moved into residential care. Despite no suggestion that the couple were anything other than happily married, on her mother’s incapacity Mrs Stanford's daughter initiated proceedings in the Family Court (as Mrs Stanford's legal guardian) seeking orders for equal division of the marital property (the main asset was the family home) between Mr and Mrs Stanford.

The initial Judge ordered that Mr Stanford pay a fixed sum of approximately half the value of the marital property to Mrs Stanford, which payment would have effectively passed directly to her guardians. To fund the payment the family home would have needed to be sold, forcing Mr Stanford to leave the house.

Mr Stanford appealed the decision, however Mrs Stanford passed away before judgment was delivered by the Court of Appeal. The Court of Appeal ultimately decided that Mrs Stanford's legal personal representatives should receive the fixed sum upon the death of Mr Stanford. This decision effectively altered the distribution of Mr Stanford's estate (which Mrs Stanford had agreed with while she had capacity) under his will as the house (following his wife’s death) would have otherwise passed to his children.

The decision of the Court of Appeal was ultimately set aside on appeal to the High Court, on the basis that the order was not just and equitable. However, importantly, the High Court confirmed that the death of a party to a marriage ‘does not transform the nature of the claim (for example, into a claim by the beneficiaries of the wife’s estate)’.

In other words, the right of a guardian or attorney to commence property settlement proceedings was effectively confirmed, even where (as here) they would have no entitlement to challenge the estate of their step father.

The decision highlights the risks that in some cases, particularly in relation to blended families, estate distributions may be fundamentally altered by way of ‘pre-emptive’ proceedings through the family law court.

Until next week.

Links to Advanced Health Directives in every state

As mentioned in last week’s post, each state offers the ability to prepare an Advanced Health Directive (AHD).

Set out below are the links to the relevant government websites that provide the standard statutory forms for AHDs.

Obviously, before relying on any link, you should satisfy yourself that the relevant document is up-to-date.

In summary then:

NSW http://www.health.nsw.gov.au/patients/acp/Publications/acd-form-info-book.pdf

VIC https://www.publicadvocate.vic.gov.au/your-rights/your-healthcare/making-an-advance-care-directive

QLD https://www.qld.gov.au/law/legal-mediation-and-justice-of-the-peace/power-of-attorney-and-making-decisions-for-others/advance-health-directive

SA https://advancecaredirectives.sa.gov.au/upload/home/Current_ACD_Guide.pdf

WA http://www.health.wa.gov.au/docreg/education/population/HP11536_advance_health_directive_form.pdf

NT https://nt.gov.au/law/rights/advance-personal-plan

TAS https://www.dhhs.tas.gov.au/palliativecare/advance_care_planning_for_healthy_dying

ACT http://www.health.act.gov.au/public-information/consumers/advance-care-planning or https://www.advancecareplanning.org.au/create-your-plan/create-your-plan-act


Until next week.

Difficulties with Advanced Health Directives

In last week’s post, an overview of Advanced Health Directives (AHDs) was provided.

As mentioned in that post, there are a number of significant practical difficulties with AHDs, and in summary, the main issues in this regard include:

1.       The person making the AHD tends to want to be able to have a ‘turn off the switch’ type provision (or perhaps even euthanasia).  No AHD allows this.  Unless the donor has specific religious or personal objectives, many of the questions are somewhat irrelevant.

2.       The attitude of a donor when signing the AHD is not necessarily any indication of their attitude in say, ten years time, when the issue arises.  Anecdotally many doctors are unwilling to rely on a document from years earlier in the heat of the moment (even if they find that document on an urgent basis).

3.       As the document needs to be completed with a GP it is unlikely that the GP is actually going to be involved in any sort of emergency situation in any event – again, another reason why the doctor actually performing the medical treatment etc, would be very unlikely to either try and find the AHD or even if it is found, look to rely on it.

4.       In contrast, doctors will generally place significant weight on whoever is appointed as the enduring power of attorney.  If that enduring power of attorney is also a next of kin and if there is no hint of any dispute in the immediate family group, then the wishes of the person seeking medical treatment will generally be respected.

In next week’s post, there will be links provided to the relevant government websites for AHDs in every Australian State.

Until next week.

What are Advanced Health Directives?

One issue that comes up relatively regularly in estate planning exercises relates to Advanced Health Directives (AHD).

In most jurisdictions, an AHD is essentially a document addressed to a person’s medical practitioner setting out the level of care that they would like to receive in a series of specific situations.  Normally, the document is crafted as a 'multiple choice' questionnaire listing out dozens of typical medical scenarios.  The document is normally completed in conjunction with a client’s GP.

As the document is a medical, not legal, one, most lawyers simply provide access to the standard document rather than providing advice on it.

One important issue to note is that in no Australian state does an AHD create the ability for euthanasia style directions to be articulated.

While a person has legal capacity they may revoke their AHD at any time. 

In an upcoming post, we will look at some of the practical difficulties of AHDs.

Until next week.

Court drafted wills

Last week I had an example of a client situation which in some respects was similar to the post a few weeks ago where a sole director died without a will.

The situation that came up last week involved a client who was the sole director of a number of companies and had lost capacity.

While she had an attorney appointed via the Guardianship and Administrative Appeals Tribunal (there are separate entities in each state regulating how someone can be appointed as an attorney where the incapacitated individual has not otherwise made a valid appointment), the director here also did not have a will.

In many situations, there is now the possibility to apply to a court before someone’s death and have the court approve a will.

The process is a relatively intense one, primarily because the court system holds the making of a will as something that ultimately should only ever be made by the individual in control of the relevant assets.

This said, when compared to dying intestate, the process is often one that we strongly recommend be considered.

Until next week.

Witnessing powers of attorney

Following last week’s post, I had a number of people raise concerns about the witnessing requirements for powers of attorney.

Unfortunately, this is yet another example of inconsistencies between each Australian state.

Certainly, in each state, legal practitioners are authorised witnesses for most forms of powers of attorney.

Having this said, documents that are directly related to medical issues can normally only be witnessed by a medical practitioner.

In some states, the financial related power of attorney documents can be witnessed by a relevantly large range of authorised signatories.

Ultimately, as I recommended to the advisers who contacted me, the safest pathway is to carefully read the relevant documentation to ensure all witnessing provisions are complied with. While there are numerous inconsistencies between the various states, each state does at least set out in some detail the witnessing requirement for each document as part of the standard government form.

Until next week.

How many powers of attorney does it take to create authority?

With increasing regularity, we are seeing issues arise in relation to the authority for people to act under powers of attorney.

Like many laws, the power of attorney legislation is frustratingly inconsistent, with different acts applying in each Australian state and territory.

In theory, there is also legislation requiring each jurisdiction to recognise the documentation prepared in each of the states. In practice however, it is often extremely difficult to convince third parties that a power of attorney document that looks completely different to what they normally expect to see is in fact legally binding.

One solution (although admittedly not a particularly efficient one) we are seeing more people implement is to have a separate power of attorney prepared under each jurisdiction where they are likely to spend significant periods of time. While not a perfect solution, this approach can provide significant practical benefits.

There is an ongoing push, as part of having uniform succession laws across Australia, for the power of attorney laws to also be made consistent. The timeline for achieving such an outcome is difficult to predict given the number of vested interests involved.

Until next week.

Can an enduring attorney be a company?

The issues in relation to attorney appointment over the last couple of weeks have generated a number of questions and comments.

One common theme has been in relation to the distinction between the appointment of an attorney and the role of an executor and/or trustee under a will.

There are a number of distinctions between these various roles, however one of the overriding practical points is that the appointment of an attorney can generally only be of an individual person.

In contrast, the appointment of an executor or trustee can be of a company or a particular role – for example, you will often see the executor of a will being crafted so that it is the 'senior partner from time to time in the firm of . . . . . .’.

Until next week.

Matthew Burgess

Should I act as an attorney for a client?

A number of people contacted me following last week's post with questions in relation to the consequences of an accountant or financial adviser (or for that matter a lawyer) acting as an attorney for a client.

Many of you will have either professional body guidelines or guidelines that your firm has agreed to implement about the basis on which (if at all) you can take on the role of an attorney.

In a practical sense, the two biggest issues you need to ensure are addressed:
1. The conflict of interest rules are very strict in this area. It is always preferable to have a very clear statement in the attorney appointment document confirming that the person appointing you as their representative waives any prohibition on you acting due to an issue of conflict.
2. Similarly, on a number of levels, it is always our strong recommendation that the professional adviser be permitted to charge their standard professional fees. This ability should be clearly set out in the appointment document.

Until next week.
Matthew Burgess