Written by Special Counsel Leigh Adams
The scenario
One month after Sean’s mother Mary turned 93 years of age, her younger brother Bob passed away.
Bob was 89 and had never married. He left his entire estate to his sister Mary. Mary inherited $1.5m from her deceased brother Bob.
After probate was granted, Sean dusted off the Power of Attorney that Mary had granted him a decade ago.
Mary had advanced Alzheimer’s disease and had been in a nursing home for a number of years. Sean always remembered her saying to him that if Bob left her any money, Sean and his two sisters Sally and Samantha, should have it.
At least that was Sean’s story and Sean was sticking to it. Sean had just exchanged contracts for the purchase of property: a house for him and his wife. Sean and his wife had lived in rented premises all their life and the windfall would mean that the house could be bought without the need to borrow any money to fund it!
The law
But Sally and Samantha had both read somewhere that NCAT (NSW Civil and Administrative Tribunal) had power to appoint a financial manager to manage the financial affairs of a person who is incapable of making their own decisions about their finances. They recalled that generally NCAT only hears applications where there are no appropriate arrangements in place.
Sally and Samantha were also aware that an attorney is not required to undergo any scrutiny prior to accepting an appointment whereas a prospective financial manager is subject to a great deal of scrutiny and oversight by NCAT as to their suitability and financial management skills.
Neither Sally nor Samantha were well off. Each could certainly use $500,000 (being one –third of the $1.5m that their mother Mary inherited from their uncle Bob).
However, Sally and Samantha were also very aware of an attorney’s duty to act in the best interest of the donor (being their mother Mary in this instance). If Sean were seen by friends or relatives to be abusing his obligations, control of Mary’s finances could be taken from Sean by NCAT appointing another relative or third party as financial manager.
Whilst Sally and Samantha felt that Sean’s financial decision making was not always the best, Sean had shown in the past that he was open to comments, assistance and suggestions from Sally and Samantha. However, the appointment of a financial manager would mean a total loss of control of their mother’s financial affairs.
What should they do? They sought our input.
The way forward
We explained that broadly the NSW legislation prevents conflict by outlawing gifting transactions without authority unless it is of the nature that the principal made when the principal had capacity or that the principal might reasonably be expected to make and the power of attorney specifically provides for this.
However, Sean was also an attorney and NSW law imposes additional constraints on attorneys. Broadly, the benefit must meet any expenses incurred or to be incurred by the attorney in respect of:
- housing;
- food;
- education;
- transportation;
- medical care and attention.
and the benefit must not be unreasonable having regard to the principal’s financial circumstances and the size of the principal’s estate.
A review of the Power of Attorney indicated that it contained the appropriate wording to enable gifts to not only friends and relatives, but also to Sean as Mary’s attorney.
The problem
However, Mary’s financial resources were limited and there was an issue as to whether the proposed benefits were reasonable having regard to Mary’s financial circumstances and the size of her estate.
The resolution
We recommended that Sean apply to NCAT under section 38 of the Powers of Attorney Act 2003 seeking an order from NCAT that it approve the proposed transaction.
The application was made and in the event, NCAT agreed that $1m be released equally between Sean, Sally, Samantha and that $500,000 be retained for Mary’s ongoing care.
If you are an attorney under an enduring power of attorney and want to maintain control of your inheritance, we recommend you give Leigh Adams a call on 02 9570 7844.