Elder Law, Trusts / Asset Planning
It is estimated that 60,000 New Zealanders are afflicted by dementia. However, in the next 35 years it is projected this is going to increase threefold to more than 150,000. 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 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. A recent case* highlights what can happen when an attorney abuses their position and uses funds for their own purposes. In this case an elderly man (“Ken”) was effectively made a “pauper” during his lifetime as his son (“Ashley”) spent his money.
Ken had assets worth nearly $330,000 when he went to live with Ashley in March 2006. Ken at this time was frail and depressed as he had lost his younger son (“Chris”) and his wife within five months. When he died in September 2011 Ken had only $1,400 to his name. The beneficiaries of Ken’s will were Ashley and Chris’ teenage son. Effectively, Ashley’s actions deprived his nephew of his inheritance.
The Court concluded that Ashley knew that his father’s estate would be split between him and Chris’ son, and that Ashley stopped this by transferring virtually all of Ken’s estate to himself and his wife while Ken was still alive. Ashley did this by taking money from Ken’s bank accounts which were under Ashley’s control. The Court found that in making the subtractions from Ken’s bank accounts Ashley exercised undue influence over Ken. The Court gave Ashley credit for the expense of caring for Ken and capital items he had bought on Ken’s behalf, but found Ashley liable to repay $280,354 plus interest for seven years to Ken’s estate. Luckily Ashley has an asset, his house, that can be used to replace the funds taken from Ken.
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 particular 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. In Ken’s case Ashley believed he had Ken’s permission to spend. The Court accepted that while Ken lived with his son and daughter-in-law he received a higher standard of care. However, the Court did not accept that Ken “for all his generosity, approved his own conversion to pauperdom when his length of life and future needs were uncertain”.
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 and by ensuring that those who are appointed understand and accept their duties, it is possible to minimise these potential risks.
*Public Trust v Vernon & Anor  NZHC 1928 [13 August 2015]
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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