Private Client
It is estimated that around 70,000 New Zealanders are afflicted by dementia. However, Alzheimer’s New Zealand in 2021 reported that this figure would jump by 30,000 over the next 10 years to 100,000. That by 2050 there will be almost 100,000 more New Zealanders with dementia than there is today taking the total number to almost 170,000 people.
One of the issues that arises when somebody is diagnosed as being incapacitated, whether by dementia or otherwise, is “who has control over their property affairs?” There are two choices of formal arrangements which are provided for by law. These are:
- either the person has signed an enduring power of attorney (“EPA”) that appoints someone, often a family member, to take control; or
- an application is made to the Court to appoint a property manager.
A property manager must, on an annual basis, report to the Court as to the status of the finances of the person whose affairs they are controlling. This does not apply to someone holding an EPA. Although the Protection of Personal and Property Rights Act 1988 does require that the property attorney is to keep full records of the management of the person’s affairs, including payments and investments, this is probably more honoured in the breach than in the observance.
In case of Vernon v Public Trust [2016] NZCA 388, property attorney (son) and his wife appealed the High Court judgment which found them jointly liable to restore misapplied funds to his father’s estate in the sum of $280,354 plus interest and costs. The High Court Judge finding that the son, Ashley (“Ashley”), had exercised undue influence over his father, Kenneth (“Kenneth”), alternately that Ashley had breached his fiduciary duties to Kenneth or acted unconscionably towards him. Ashely’s wife Beverley was found jointly liable with Ashley on the grounds of knowing receipt of Kenneth’s funds. In this case Kenneth had effectively been made a “pauper” during his lifetime as Ashley spent his money. Although the Court of Appeal found that Kenneth’s estates claim of undue influence could not succeed, it did however find, when considering the evidence as a whole, that Ashley had, for his own benefit, abused the power entrusted in him by Kenneth. Ashely breached the fiduciary duty he owed to Kenneth in executing his powers under the EPA. The Appeal was dismissed.
An attorney must ensure that they do not benefit themselves at the donor’s expense or act as otherwise provided for in the EPA itself. An attorney must always act in the donor’s best interest, in particular where the power is granted for the purposes of preserving and managing the donor’s property and must discharge their duties with the utmost loyalty, honesty and good faith.
The statistics indicate that more of us will have our affairs under the control of others in our later years. In the absence of stricter laws being passed, how can you protect your assets to ensure they are used for your care with the remainder passing by the terms of your will?
It is possible to tailor an EPA to your individual needs. It is, for example, possible for your EPA to provide that:
- annual financial statements must be presented to someone for examination, perhaps your accountant and/or lawyer; or
- if the attorney is spending above a certain dollar amount (e.g. $5,000) that someone must be consulted, and prior approval gained for that expenditure.
In addition, careful consideration should be given to who is appointed as the property attorney. A family member is often appointed, but depending on your circumstances it may be appropriate that a professional person (who is bound by strict codes of conduct) is also involved. Unfortunately, too often those acting as an attorney do not understand or accept the requirement that, unless the EPA provides otherwise, the funds can only be used for the benefit of the incapacitated person.
It is not possible to prevent all possible abuses through the use of enduring powers of attorney. However, by careful drafting of your power of attorney, understanding the effect of the clauses under the EPA and by ensuring that those who are appointed understand and accept their duties, it is possible to minimise these potential risks.
The contents of this publication are general in nature and are not intended to serve as a substitute for legal advice on a specific matter. In the absence of such advice no responsibility is accepted by Brookfields for reliance on any of the information provided in this publication.
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