Blog Post

In Brief

Most people make a will setting out what will happen to their property after they die. But have you considered what would happen if you lost capacity during your lifetime and could no longer manage your own affairs?

Whether because of an accident, illness or simply the effects of ageing, we all need to consider who would manage our legal, financial and personal affairs if we were still living but could no longer make or communicate decisions ourselves.

In this article, GCA Lawyers explains how Enduring Powers of Attorney in New Zealand work, what your options under the Protection of Personal and Property Rights Act 1988 if you lose capacity without one are, and why it is important to put arrangements in place while you still have capacity and can make your own choices.

Your Guide to Enduring Powers of Attorney in New Zealand

Unless their health is declining, few people consider that they might one day need to authorise someone else to act on their behalf and manage their affairs. But if you reach the point where this becomes necessary, it may already be too late to put the arrangements you would have chosen in place.

Selecting and appointing the person or people you would want to manage your affairs if you lose capacity is therefore something everyone should consider while they are in good health and able to make those decisions for themselves.

In New Zealand, the legal document used to give someone authority to act on your behalf is called an Enduring Power of Attorney (EPOA). There are two types of EPOA:

• an EPOA for your personal care and welfare; and
• an EPOA for your property, which includes your assets, finances and liabilities, not simply your home or other real estate.

How do you make an Enduring Power of Attorney?

The person you appoint to act on your behalf is called your attorney. Appointing an attorney generally involves providing your lawyer with the name and contact details of your proposed attorney, discussing the arrangements you want to put in place, and signing the necessary documents.

You need to meet with a lawyer or other authorised witness because, for an EPOA to be legally effective, the law requires an independent qualified lawyer, legal executive, or an authorised representative of a trustee corporation to explain the effect of the EPOA to you and certify certain matters. These include that you understand the nature and consequences of the document and its potential risks, and that you are not being pressured or forced to sign it.

These safeguards are important because an EPOA can give another person significant authority to make decisions or deal with property on your behalf.

What happens if you lose capacity without an EPOA?

The cost of putting valid EPOAs in place is often relatively modest. However, many people assume that because they are healthy or relatively young, they do not need to worry about it yet.

Accidents and illness do not discriminate, and people of any age can unexpectedly find themselves in a situation where their capacity is lost or diminished. The consequences can be particularly difficult if recovery takes a long time. Declining capacity can also sneak up gradually as a result of illness or ageing.

If you lose capacity without an EPOA, you and your family may face a costly, stressful and time-consuming process to obtain legal authority for someone to act on your behalf.

If, for example, someone needs authority to manage your finances, pay your everyday bills or otherwise keep your affairs running while you are unable to do so, it may be necessary to apply to the Family Court under the Protection of Personal and Property Rights Act 1988 (PPPR Act).

What is involved in a PPPR Act application?

An application under the PPPR Act for a personal order, or for the appointment of a welfare guardian or property manager, takes time and can be costly.

There is a significant amount of paperwork involved. Depending on the orders sought, this can include preparing and filing an application, affidavit in the prescribed form, consents from other people who may have a right to apply, and medical evidence concerning the person's capacity.

Once the documents have been filed, it can take time for the Court to process and determine the application, even when the matter is urgent.

The Court will generally appoint a lawyer to represent the interests of the person who has lost capacity. That lawyer will investigate the circumstances and provide a report to the Court addressing whether the orders sought should be made.

The application and the lawyer's report are then considered by a Judge, who decides whether the proposed orders are appropriate.

What are the ongoing obligations of a property manager?

If a property manager is appointed, the obligations do not end when the Court order is made.

A property manager must generally file a report with the Court within three months of their appointment setting out the assets and liabilities of the person whose property they are managing. Further reports are then required annually. These reporting requirements are intended to protect the person's property and ensure that the property manager is exercising their powers appropriately.

Property manager reports are also subject to auditing by the Public Trust. This creates an additional administrative requirement and can result in further ongoing costs, particularly as the Public Trust charges for its work to recover costs.

A PPPR Act property management order will also generally need to be reviewed periodically. This allows the Court to take account of any changes in the person's circumstances or capacity.

An important principle underlying the PPPR Act is that a person should retain as much capacity, independence and control over their own affairs as reasonably possible. Court intervention is intended to be no more restrictive than necessary.

EPOA vs PPPR Act application: what is the difference?

• You choose who will act for you. An EPOA allows you to select your attorney and determine, within the limits of the law, how and when they can act on your behalf. Without an EPOA, someone may need to apply to the Court, and ultimately the Court decides who should be appointed and what powers they should have.
• An EPOA is simpler and less expensive. Putting an EPOA in place is usually relatively straightforward. A PPPR Act application involves Court proceedings, medical evidence and potentially several parties, as well as legal and administrative costs.
• Court appointments carry ongoing obligations. A property manager appointed under the PPPR Act can face ongoing reporting, auditing and renewal requirements. Those obligations can continue for as long as the Court appointment remains necessary.
• A crisis is the worst time to deal with the issue. Although forms and templates exist for PPPR Act applications and property manager reports, the process can be difficult to navigate, particularly when a family is already dealing with the shock of a loved one suddenly losing capacity following an accident or illness.

Why should you have an EPOA?

As we explain to clients, an EPOA can be viewed as a form of insurance against the risk that you lose capacity in the future.

Putting EPOAs in place while you have capacity allows you to decide who you trust to make decisions for you and gives you greater control over what will happen if you become unable to manage your own affairs.

By contrast, if you lose capacity without an EPOA and an application under the PPPR Act becomes necessary, there can be substantially greater upfront costs, together with ongoing costs associated with Court orders, reporting and auditing.

The important point is that an EPOA must be put in place before you lose the capacity to make one. By the time you need it, it may be too late.

If you would like to put an Enduring Power of Attorney in place, review your existing EPOAs, or need assistance with a PPPR Act application, please get in touch with the GCA Lawyers team.