WHAT HAPPENS IF I LOSE MY MARBLES?


What constitutes “Losing my Marbles”?

This is an expression meaning that a person is disabled to the extent that he or she cannot deal with his or her affairs in an informed and reasonable way. Legislatively, the Instruments Act refers to “legal incapacity” as not revoking an Enduring Power of Attorney, the Guardianship and Administration Act refers to granting administration for “a person with a disability who is unable to make reasonable judgments in respect of matters relating to his Estate, and the Wills Act refers to Wills made by the Court for a person who does not have “testamentary capacity”. All the expressions contemplate a person who is unable to manage his or her affairs. The Instruments Act, in Section 118, sets out criteria for establishing capacity to make an Enduring Power of Attorney.

Who determines if I am incapacitated?

 In most cases the situation is clear. If the situation is not clear the assistance of a Medical Practitioner, possibly one experienced in psychiatry or geriatrics, may be required.
An example of when a Medical Practitioner’s view may be sought is when, in the case of an Enduring Power of Attorney (Financial), the Power of Attorney is to commence upon the donor becoming legally incapacitated. In this case it is normal to say that proof of the incapacity is to be a certificate from a Medical Practitioner to that effect.

If I am incapacitated does that automatically mean that I can avoid any Contract or other obligation I enter into?

Cheshire and Fifoot’s Law of Contract says a person lacking capacity can only avoid an obligation if he was suffering from such a degree of mental disability that he was not capable of understanding it and that the other party was, or should have been, aware of this. This test is more or less reproduced in Section 52(3) of the Guardianship and Administration Act in the case of obligations entered into by a represented person (i.e. a person who has an administrator).

Who can made decisions for me if I lack capacity?

If you have made an Enduring Power of Attorney (Financial) your attorney can make financial decisions for you. The attorney’s power does not extend to lifestyle decisions – if there is a perceived need to have a person who can make lifestyle decisions an Appointment of Enduring Guardian is required.
If there is no Enduring Power of Attorney (Financial) and a person has lost capacity the person cannot thereafter give a Power of Attorney. In this case, if decisions have to be made, an administrator will need to be appointed under the Guardianship and Administration Act. If lifestyle decisions are required then a guardian may be required to be appointed under the same Act.

Now for some specific situations

What if you want to give a power of attorney but are concerned that your attorney may give or lend money to himself. An Enduring Power of Attorney can provide for “conditions and limitations on, and instructions about the exercise of the power” (see Section 115(2)). It is a simple matter to provide that the attorney may not make gifts (other than perhaps limited value gifts for birthdays etc. and to charities). There is also the statutory requirement for an attorney to undertake to use the power to protect the donor’s interests and to avoid acting where there is a conflict of interest.

What if you are concerned that you may, in your dotage, become attracted to a person or institute who or which might separate you from your money?

You might consider saying in your Power of Attorney that if your attorneys see this as likely they are authorised to transfer assets so as to limit your access to those assets and also say that you agree not to revoke the Power of Attorney without specified notice.

What if you are a Trustee and become incapacitated?

Section 41 of the Trustee Act provides that where a trustee “is unfit to act or is incapable of acting” then new trustee(s) may be appointed

- by the person nominated for the purpose of appointing new trustees in the Trust Deed

- if there is no such person, or no such person able or willing to act, then by the surviving or continuing trustee or by the personal representatives (executors) of the last surviving or continuing trustee.

The Court has an overriding power to appoint a new trustee where it is otherwise not possible or practical to appoint a new trustee.

The question arises as to whether a person appointed under Power of Attorney can exercise a trustee’s rights when the trustee becomes incapacitated. The answer is no, unless the Trust Deed specifically allows for this situation. The general rule is that a trustee must not delegate his duties or powers but the Trust Deed may override the general rule.

In the case of a self managed superannuation fund the Act (Superannuation Industry (Supervision) Act 1993 – Section 17A) provides that the complying status of a fund is not prejudiced where a member who is a trustee or director of a trustee company is under a legal disability and a person who holds an enduring Power of Attorney becomes trustee or director in his place. It follows that the Superannuation Trust Deed should provide for this eventuality.

What happens if I am an Appointor or Guardian under a Family Trust?

The answer is likely to be found in the Trust Deed. However, most older Trust Deeds do not cover the situation. Trust Deeds should say that if the appointor/guardian becomes incapacitated (or subject to a mental or legal disability) then either permanently or for so long as the disability continues the appointor/guardian’s power shall vest in a specified person or a person holding a specified office. An example of such a provisions (not necessarily endorsed by this firm) is “if the appointor becomes mentally or legally disabled including being declared bankrupt then from the time of such disability and during its continuance the powers vested in the appointor shall vest in :

(a) The person or persons named in the most current General or Enduring Power of Attorney for the appointor, or

(b) If there is no such person, the person nominated as executor in the most recently executed Will of the appointor

and any person exercising the appointor’s powers under the preceding sub-clauses must only do so in the best interests of the beneficiaries and, in particular, where the appointor and any of the appointor’s issue are beneficiaries, in the best interest of those persons. When the appointor ceases to be subject to a disability he shall again become appointor and any person exercising the appointor’s powers under the preceding clauses thereupon ceases to have the right to exercise those powers”.

The question arises as to whether a person appointed under Power of Attorney is able to exercise the rights of appointor/guardian. If the power is an Enduring Power of Attorney (Financial) it authorises the attorney to do anything that the donor can lawfully authorise an attorney to do. This begs the question because it doesn’t answer what a donor can lawfully authorise an attorney to do. It is thought that the principal restrictions on the ability to delegate i.e. to appoint someone else to do something on your behalf are –

- where you are yourself a delegate e.g. a trustee or an agent)
or
- where your position is personal to you e.g. a company director

It follows that it seems likely that an appointor/guardian can delegate his powers by an Enduring Power of Attorney (Financial). If this is what is intended the Power of Attorney should say so – if it is not intended the section of the Power of Attorney reserved for instructions directions and limitations should say that the Power of Attorney does not extend to the role of appointor/guardian.

What happens if I am a Director of a company?

If the company is a single director single shareholder company Section 201F(2) of the Corporations Act provides that if the director cannot manage the company because of mental incapacity and a personal representative or trustee is appointed to administer the person’s estate, the personal representative or trustee may appoint a director of the company. Neither “personal representative” nor “trustee” are defined in the Act but it seems likely that a person appointed administrator under the Guardianship and Administration Act would fall within the definition of “trustee”.

If the company has more than one director it is likely that the company will have a Constitution and that the Constitution will provide grounds for disqualification including in respect of a director becoming of unsound mind or whose estate is liable to be dealt with in any way under the law relating to mental health. If the company does not have a Constitution the Act enables a proprietary company, by resolution, to remove a director and appoint another person as a director. An attorney of a director is not entitled to act on behalf of the director.

Conclusion

Make an Enduring Power of Attorney (Financial) and make full use of the section headed “Conditions limitations and instructions”. Ensure that the constituent documents for any office you hold say exactly what happens if you become incapacitated.