The Protections and Perils of Enduring Powers of Attorney

The Protections and Perils of Enduring Powers of Attorney

None of us likes to consider the possibility that we may one day find ourselves unable to manage our own affairs. It is a boon that we can expect to live longer, but longer life often involves a loss of independence, and the possibility of that loss of independence necessitates forward planning. It is essential to ensure that someone can take up your day to day responsibilities in the event that you lose physical or mental capacity and one of the simplest and most cost-effective tools available for these purposes is the Enduring Power of Attorney (“EPOA”).

What is an Enduring Power of Attorney?

An EPOA is a document by which you, the “donor” (essentially the giver of authority) confer authority on a person (your “attorney” – not to be confused with your lawyer, although your lawyer could be your attorney!) to manage your property and affairs in the event that you should, one day, lose capacity. It is, of course, possible to confer immediate authority on your attorney, if, for example, you have reached a point in life where you would simply prefer to hand over the reins. However, most often, an EPOA will only come into effect when your doctor certifies that you have lost capacity. This is a protection to you, so as to ensure that your attorney isn’t able to arbitrarily decide that you have lost capacity, so as to get his hand on your assets. If you regain capacity, you are free to revoke the authority. If not, your attorney will act on your behalf for as long as you or he (or any substitute attorney you have named) lives.

Your attorney is under an obligation to act in good faith in accordance with the terms of the EPOA, which means he does not have authority to set out on a frolic of his own. Regrettably, it is not uncommon for attorneys to do exactly that, and they are very often able to get away with it because the legislation governing powers of attorney in Bermuda is antiquated and the protection it affords, limited.

Limitations of the Powers of Attorney Act 1944

The Powers of Attorney Act 1944 offers few safeguards against abuse of power by an attorney under a power of attorney. Although it identifies a duty to account, the ability to call for accounts from the attorney requires that an application be made to court. In the first instance, such an application must be made by those persons who would be entitled to the donor’s estate on his or her intestacy (death without a will), namely, the donor’s immediate family members. The difficulty is that in many cases, it is an immediate family member who may be acting as attorney abusing the powers of the office! The same circumstances apply to an application for a substitute attorney. There is a provision in the legislation for applications to be made by any other person the court deems appropriate, however, there is no guidance as to what “other person” might be acceptable. On the face of it, therefore, without a preliminary application to the court to determine the fitness of the person seeking to invoke these provisions of the legislation, there is no easy way for third parties, who have reason to be concerned about the wellbeing of a donor, to take action. In addition, precisely what is meant by “accounting” is not specified, so it is unclear whether the attorney is just required to produce numbers, or must also provide an explanation for his actions.

In the best of all possible worlds, our Powers of Attorney legislation would address such issues as:

• who may serve as an attorney (i.e. persons who have committed crimes of dishonesty, would be precluded from acting);
• minimum standards of conduct of an attorney;
• the formal requirements for validity of an EPOA, including, for example, that an “EPOA is effective in relation to an attorney only if the attorney has accepted the appointment by signing the EPOA”. This would eliminate the surprise appointment, where the attorney had no idea they had been appointed, which is actually the most common scenariotype of appointment;
• revocation of authority by marriage or divorce;
• inclusion of a declaration that the power exercised by an attorney will be exercised honestly and with reasonable diligence to protect the donor’s interests;
• limitations on how certain transactions should be handled in circumstances where the attorney faces a potential conflict of interest and duty

and if we were really lucky, our legislation would also include a requirement that every EPOA be registered and that the registry be capable of examination by lawyers drafting EPOAs. This would go some way to guarding against the manipulation of seniors, who are frequently induced by a family member to execute an EPOA, giving that person authority, and then again by another family member. In keeping with this, the legislation would, ideally, create an offence “to dishonestly induce the making or revocation of a power of attorney”, carrying with it a penalty sufficient to be an effective deterrent.

What can you do to protect yourself?

In the meantime, and understanding some of the shortcomings of the current legislation noted above, how can you achieve the protection offered by an EPOA, in the form of securing assistance in managing your property and affairs throughout your incapacity, without encountering unnecessary peril?

1. Choose your attorneys carefully. Make no assumptions that your immediate family members will always keep your best interests in mind (as opposed to their own!). Consider having two attorneys acting together, and make one of those attorneys a trusted non-family member (a friend, or advisor). This “four-eyes” approach, coupled with the relative independence of the non-family member can provide much needed checks and balances against misappropriation. If you name a spouse, you might want to consider what happens if you divorce. And think about succession generally. You might not have capacity to change the EPOA in the future in circumstances where your chosen attorney has predeceased you or is unable or unwilling to act, so make sure you have named substitutes.
2. Read the EPOA thoroughly and ask questions of your lawyer. An EPOA is often offered up as part of an estate planning package, which includes a will and advance directive for healthcare. Many people would rather not spend the money to do it right and choose simply to accept the “standard terms”. There is no reason, however, why this document should not be tailored to fit your specific needs, just as you would tailor the terms of your will. Clauses can be added or removed or limited by amount, asset class or date.
3. Even though it is not presently a legal requirement, consider having your attorney sign the EPOA to acknowledge his understanding of the obligations and responsibilities inherent to the position. Let your lawyer explain his obligations to him and make a file note of that discussion. It will be very difficult for him to later argue that he thought it was perfectly acceptable to transfer your assets into his own bank account, or sell your house and pocket the proceeds! Include a “good faith” clause in the EPOA, so that when he signs, your attorney effectively says: “yes, I agree to act in good faith and in your best interests”.

Knowledge is power. Be informed, make informed decisions and you will gain the protections, while avoiding the perils, of an EPOA.