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Breaches of enduring powers of attorney: the need for a national register

It is time for a national POA register to protect older Australians from economic crime.

Enduring powers of attorney (POA) allow mentally capable adults (the principals) to authorise one or more persons (their attorneys) to do anything on their behalf that they can lawfully authorise attorneys to do. When principals lose capacity, their appointed attorneys can transfer their funds and property and make legal and economic decisions on their behalf.

Attorneys are generally agents for the principals, and are also seen as trustees for their principals’ assets. Attorneys have duties to act in the best interests of their principals, and breach their duties when they apply the principals’ assets for their own personal gain.

The effect of enduring powers of attorney ceases when the principal dies, as the principal’s will (if there is one) or the laws of intestacy (if there is no will) take effect.

Background

We live in an age where trust in our public and private institutions is being challenged, when institutions fall short of expected standards of conduct on an almost daily basis. Unfortunately, individuals appointed as attorneys under POAs are no less liable to the same shortcomings.

Despite recent POA changes increasing the penalties (financial as well as criminal) that the Victorian Civil and Administrative Tribunal (VCAT) can impose on attorneys who breach their obligations, such matters are still determined after the fact when the breaches have already occurred, and only then when the tribunal is satisfied that the breaches have been proved.

While providing a disincentive to problematic attorneys who may consider breaching their duties, such measures are only brought to bear after the horse has bolted and do not stand as a pre-emptive strike against improper use by attorneys of their appointed powers.

Types of economic crime

There are three types of economic crime committed against the elderly: fraud, financial abuse, and POA and guardianship matters.

Sadly, such considerations are not recent developments. The key element in all cases is the intentional misuse of funds by attorneys for their own benefit in conflict with their duties as fiduciaries.1

An increase in POA-related fraud is likely due to social factors triggered by delayed inheritances. We live longer than ever before, and inheritances that children previously could expect to receive in their 40s, 50s or even 60s are now being delayed for decades.

Financial victimisation can devastate older people:2

  • Comfortable, independent lifestyles can collapse.
  • There may be no time to recover financially, resulting in increased reliance on Centrelink benefits.
  • Fear, a sense of betrayal, depression, guilt, shame, denial, anger and a lack of trust can give rise to acute and chronic anxiety and physical illness.

These factors can cause permanent and sometimes life-threatening setbacks. Often victims do not want to “cause a fuss” to avoid alienating family members, but then they risk becoming pawns in a family game of emotional blackmail. They may feel that reporting the crime does no good, or they “don’t want to bother the police”.

Ultimately, it may be that their greatest fear is being seen as incapable of handling their own financial affairs, and putting their independence at risk.

Fraud, financial abuse and improper conduct

“Fraud” is a handy reference to indicate intentional misuse of funds by attorneys for their own benefit in conflict with their duties as fiduciaries, and can involve abuse where the POA has been “exercised for a purpose and with an intention beyond the scope of or not justified by the instrument creating the power”.3

Abuse may be physical, sexual, financial, psychological, social and/or neglect. The abuse can be in any “act occurring within a relationship where there is an implication of trust, which results in harm to an older person”, but in particular it may occur within the family group where family members abuse the position of trust placed on them by the older person. 4

Abuse of a POA is a well-recognised example of elder financial abuse.5Evidence of financial abuse can also include loss of jewellery, bank books or personal property, unprecedented funds transfers, unpaid bills where a third party has been entrusted to pay them, unexplained bank withdrawals and cashing of personal cheques.6

“Improper conduct” covers the attorney’s breaches of duty that cause harm to the principal whether that harm is physical, sexual, financial, psychological, social and/or neglect.

Victorian Civil and Administrative Tribunal

Recent POA amendments include:

  • It is now an offence for someone to dishonestly obtain or revoke an enduring power of attorney to obtain financial advantage for them or for someone else, or to cause loss to the principal or another person.
  • VCAT can now order attorneys to compensate the principal for loss caused by the attorney for breaches.
  • Potential applicants can include the principal and the executor or administrator of the principal’s estate.
  • There is a time limit for applications where the principal or attorney has died (within six months after the death), and where necessary VCAT is able to refer these applications to the Supreme Court of Victoria.

However, despite the changes, VCAT is still not a court of law and its orders still require enforcement applications to the Magistrates’ Court involving yet further time and expense.

Note that because existing laws focus on proceedings for debt or asset recovery,7 defences (often without supporting documentation) tend to fall into two categories: whether the assets received were a gift or a loan.

The following points are important in deciding whether to bring an action for recovery of assets and to call an attorney to account:

  • The victim’s health and capacity
  • Who will pay the costs
  • How to confirm that breaches have even happened (sometimes evidence can be circumstantial at best).

Actions to reclaim assets often stop when victims die, and it is then the executor’s responsibility to pursue the issues. However, this can create difficulties when the executor and the attorney in breach are one and the same.

For example, the court in Watson v Watson8 considered the case where the deceased had made a will giving the defendant and the plaintiffs equal shares in his estate, and had also made a financial power of attorney appointing the defendant as attorney. However, the defendant withdrew funds from the deceased’s accounts prior to death and transferred the deceased’s property into his name.

The court referred to the provisions of the Family Provision Act 1982 (NSW) and held that:

  • The attorney’s actions were contrary to the intentions of the deceased.
  • The defendant held the real estate and the funds in trust for the benefit of the estate and therefore they were estate assets.
  • The defendant was required to reconvey the real estate and the funds to the estate.
  • The defendant was ordered to bear his own costs and to pay the plaintiffs’ costs.

Costs are at the sole discretion of the court, but it is likely that the court would take a dim view of a defendant where unconscionability and undue influence had been demonstrated.

Coordinated Central Body and Register

As a result of ongoing abuses, 10 years ago I was not alone in recommending that a national register of POAs be established9to prevent breaches from occurring in the first place, as there was no way of checking the validity of POAs when a principal’s relative, friend or carer attempted to withdraw funds or transfer money or property. Some Australian jurisdictions such as Queensland and NSW already require POAs to be registered with their respective land titles offices where such documents are used in land transactions.

I proposed a central national registry for POAs, including a fidelity fund with a bond to be paid by attorneys to enable them to act.

Little has changed since then, and more recently the Australian Law Reform Commission has emphasised the need for a national register. ALRC president Professor Rosalind Croucher made the following points:10

  • People describe powers of attorney as a licence to steal.
  • There might be multiple powers of attorney.
  • There is uncertainty as to which is the right one, which is the most recent, and which is the valid one.

In order to safeguard the elderly and ensure that attorneys do not breach their fiduciary duties, I also recommended that a combination of strategies involving legislation, law enforcement, education and information be implemented,11 such as:

  • Specific Australia-wide legislation
    Children have specific laws to protect them, but no such laws protect the elderly. We need laws that “claw back” assets, laws for strict liability offences, and laws for mandatory reporting.
  • Certificates of competency
    Certificates of competency for attorneys confirm that they have completed an approved course about their rights and obligations.
  • Trained police
    Police would liaise with older people in the community to offer constructive information and advice about risks, suggest appropriate fraud prevention measures and prosecute misuses of
    powers of attorney.
  • Education and information
    Education and information reinforce the risks and create strategies to prevent victimisation. Research shows that people who are already victims are more likely to become victims in the future, and efforts will focus on victims to break the cycle. Older people could also be encouraged to report their experiences to create a database to reveal patterns of victimisation so that
    appropriate preventive action can be initiated.
  • Business and members of professional organisations
    Professionals in all fields play a large part in filtering transactions that lead to fraud. For instance, banks can be authorised to monitor accounts and raise concerns with the account holder
    where unusually large transactions or unusual patterns occur, and warn of the possibility of fraud.

Given the continuing uncertainty and risks, it is time for a national register of POAs to protect our elderly.

David Davis is a Principal of David Davis & Associates and leads the Estate Planning and Business Succession areas. Davis has been involved in consultation and policy at State and Federal levels regarding Powers of Attorney and Advance Care Directives, and has presented at State and National Conferences in his areas of expertise.

 

References

1 See for example Minister for Justice and Customs Australia, Fraud against the Eldery, 30 December 1999; Australian Institute of Criminology, Trends and Issues in Crime and Criminal Justice: Substitute decision making and older people, No 139 of December 1999; Australian Institute of Criminology, Crime and Older Australians: Understanding and responding to crime and older people, 2000.

2 Australian Institute of Family Studies, 7th Australian Institute of Family Studies Conference, Family Futures: Issues in Research and Policy – Crime and Older Australians, Sydney, 24-26 July 2000; Australian Institute of Criminology, Older People and Consumer Fraud, 2001.

Vatcher v Paull (1915) AC 372 at 378.

Victoria, Office of Senior Victorians, Strengthening Victoria’s Response to Elder Abuse: Report of the Elder Abuse Prevention Project, December 2005.

John Billings, “Redressing financial abuse by an attorney under an EPA (Enduring Power of Attorney)”, unpublished paper presented at the LexisNexis Wills, Succession and Estate Planning Conference, Melbourne, 6 March 2007.

6 Elder Abuse Prevention Unit (Queensland), see www.eapu.org.au; Office of the Public Advocate, Uncovering Elder Abuse: Powers of attorney, administration orders and other issues for banks, 25 November 2005.

The Judgment Debt Recovery Act 1984 (Vic), the possession provisions of the Property Law Act 1958 (Vic) and the recovery provisions of the Supreme Court Act 1986 (Vic) and Rules.

[2002] NSWSC 919, BC200205921.

Davis, David, Protecting Elderly Victims of Crime (2007) 81(9) LIJ, p. 46

10 Elder abuse inquiry calls for power of attorney changes to stop children ripping parents off, ABC Radio National Background Briefing, 11 December 2016

11 ABC, “Financial abuse of the elderly”, Background Briefing, 22 January 2006; Australian Institute of Criminology, note 1 above, John Billings, note 6 above.

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