Financial Abuse by Attorneys who are Family Members
We recently wrote about the alarming statistics surrounding Elder Abuse in our country which includes financial abuse by attorneys who are family members (Elder Abuse on the Rise – How To Get Help!). Increasingly, attention within the legal fraternity is being paid to the plight of the elderly who become the subject of various forms of abuse. Sadly, we see the abuse of relationships of trust too often. Frequently those relationships exist between family members where an Enduring Power of Attorney has been signed in favour of a family member, usually by an elderly parent or grandparent.
An attorney appointed by a Power of Attorney has significant responsibilities under law which must be complied with. A Power of Attorney is a legal document that you can use to appoint someone (your attorney) to act on your behalf – that is, to be your decision maker – in property and financial matters. An Enduring Power of Attorney continues to operate after you lose mental capacity. The types of decisions an attorney can make include, but are not limited to, buying and selling real estate, operating bank accounts, dealing with government agencies, dealing with telco providers, and paying bills. Depending on in what State the documents are prepared, an attorney can also make decisions about your lifestyle and health (this is the case in Queensland). In New South Wales, a Guardian under an Appointment of Enduring Guardian can make your lifestyle and health decisions.
DUTIES OF ATTORNEYS
The legislation governing an appointment of an attorney imposes high standards of conduct on the attorney. It is well established that an agent (the attorney) owes the principal (the person who gives the power) a fiduciary duty. A fiduciary duty is a legal duty to act in the best interests of another. This means that all actions taken and decisions made pursuant to the Power of Attorney must be in the interests of the principal and where there is a conflict between the interests of the two, the attorney must accord priority to the interests of the principal. A significant form of financial abuse is the unlawful acquisition of the principal’s assets and using the principal’s money for the attorney’s personal use or gain.
An attorney must not gain a benefit from being an attorney and must keep their own money and property separate from that of the principal’s. For example, an attorney should not transfer the principal’s money into their own bank account to pay the principal’s bills. The attorney should also keep reasonable accounts and records of the principal’s money and property. If an attorney is paying a principal’s bills they should keep a record of what they are paying as they can be called upon to demonstrate what they have done with the money, as they have a duty to protect and preserve a principal’s assets.
Attorneys are too often entering into conflict transactions and need to be aware of the duties which they take on when they accept their appointment as attorney. A conflict transaction is outlined under section 73(2) of the Powers of Attorney Act 1998 (Qld) as a transaction where a conflict arises between the duty owed to a principal by the attorney and the interests of the attorney (or someone who might be a relation, business associate or close friend of the attorney). A few examples of conflict transactions are where an attorney:-
- purchases an asset of the principal’s for themselves (e.g. the principal’s car);
- uses the principal’s money to make loans to themselves, family members, friends etc; and
- uses the principal’s money to purchase a house for the attorney to live in.
A principal can authorise an attorney to enter into a conflict transaction but this must be expressed in the Power of Attorney and it is important that the attorney still acts diligently. In addition, an attorney acting pursuant to a Queensland Power of Attorney can use the principal’s assets to maintain the principal’s dependants as long as it is reasonable in the circumstances. However, under a New South Wales Power of Attorney the attorney would only have the power to use the principal’s assets for a third person if it was expressed in the document.
An attorney must be very cautious when making transactions dealing with the principal’s money and property. Any transaction made MUST be entered into and authorised in the exercise of a Power of Attorney. If an attorney fails to comply with their obligations they can be required to compensate the principal or even the principal’s estate (if the principal has passed away) for the loss that they caused. If the transaction was not affected by the use of a Power of Attorney this does not mean that the party acting wrongfully gets off scot free. We often find in these situations the attorney is likely to be found guilty of undue influence.
A transaction that occurs between an attorney and a principal automatically gives rise to a presumption in the principal’s favour that the principal was induced to enter into the transaction by the attorney’s undue influence. For instance, if Joe held a power of attorney for John and John transferred his car to Joe, it is presumed that John was induced to enter into the transaction by Joe’s undue influence. This is even the case where there is no concern regarding the principal’s mental capacity to enter into the transaction.
Where a presumption of undue influence arises, it is for the person who wishes to uphold the transaction to rebut it by establishing that the other party to the transaction entered into it as a result of a free and well understood exercise of his own will, not as a result of the influence. It is up to the attorney to prove the transaction was authorised and/or appropriate. Relevant to the rebuttal of the presumption are whether the party said to have been unduly influenced:
(a) had the benefit of independent advice;
(b) knew or understood the extent to which the transaction was advantageous or disadvantageous from his or her perspective;
(c) was motivated to enter into the transaction by factors other than the relationship of influence complained of.
Attorneys need to be careful that they do not enter into a transaction that automatically gives rise to a presumption of undue influence. It can be difficult to successfully argue the above matters rebutting the presumption, particularly in a family situation and especially where independent advice is not obtained. This can be compounded, if the principal then goes on to lose capacity and the attorneys are questioned about transactions.
To this end, it is important that where any significant transaction between attorney and principal is contemplated, both parties seek independent advice to ensure the transaction is not set aside.
It is quite common for a parent to want to give gifts of money or chattels to their children, but when the child is also their attorney, this can cause suspicion and jealousy amongst other siblings. We have been involved in many cases where the attorney says ‘Mum gave me her car’ or ‘Mum loaned me the money to buy my house but said I didn’t have to pay it back’. This is very difficult if you are also an attorney!
WHO SHOULD I APPOINT AS MY ATTORNEY? SHOULD I APPOINT MORE THAN ONE?
It is very important when creating a Power of Attorney that you carefully consider who you want to be your attorney and that you appoint someone who you trust. It is a good idea to appoint more than one attorney, acting jointly so they can keep each other in check and to have a reserve just in case something happens to them. Sometimes it is wise to appoint an independent person such as a lawyer or accountant to be your attorney or a co-attorney if you are concerned your children may not act in your best interests or don’t get on. You should also seek legal advice when creating a Power of Attorney from lawyers who specialise in this area of law, so that the correct powers and restrictions are noted in that document which will allow the attorneys to carry out their duties in the way you wish.
WHO DO I GO TO IF THERE IS ABUSE?
If someone believes that an attorney is abusing a principal by using their powers for their own use or gain and/or is entering into conflict transactions, then they can make an application to the appropriate Tribunal in their State (NCAT in NSW or QCAT in QLD) and have the Tribunal investigate the principal’s affairs. You may also report the matter to the Adult Guardian .
If you are someone who believes their Power of Attorney has been abused, or if you are an attorney requiring some assistance with the execution of your duties, or you would like assistance in preparation of a Power of Attorney please do not hesitate to contact our Wills & Estates Department Manager, Donna Tolley on free call 1800 621 071 or direct line 07 5506 8241 or email firstname.lastname@example.org.